Key Accounting Ratios Quiz
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Questions and Answers

What is the formula for Net Working Capital?

  • Current Assets / Current Liabilities
  • Current Assets - Current Liabilities (correct)
  • Current Liabilities - Current Assets
  • Current Assets + Current Liabilities

    • How is the Current Ratio calculated?

  • Current Assets / Current Liabilities (correct)
  • Current Assets - Current Liabilities
  • Current Liabilities / Current Assets
  • Current Assets + Current Liabilities

    • Which formula represents the Quick Ratio?

  • Current Assets / Current Liabilities
  • (Current Assets + Cash) / Current Liabilities
  • (Cash + Receivables + Marketable Securities) / Current Liabilities (correct)
  • Current Liabilities / Current Assets

    • What is the formula for Inventory Turnover?

    <p>Cost of Sales / Inventory</p> Signup and view all the answers

    Days Inventory Outstanding is calculated as:

    <p>365 / Inventory Turnover</p> Signup and view all the answers

    What is the formula for Receivables Turnover?

    <p>Net Sales / Accounts Receivable</p> Signup and view all the answers

    How do you calculate Days Sales Outstanding?

    <p>365 / Receivables Turnover</p> Signup and view all the answers

    What is the Total Asset Turnover formula?

    <p>Net Sales / Total Assets</p> Signup and view all the answers

    Times-Interest-Earned ratio is calculated as:

    <p>EBIT / Interest Expense</p> Signup and view all the answers

    The formula for Debt Ratio is:

    <p>Total Liabilities / Total Assets</p> Signup and view all the answers

    The Debt-to-Equity Ratio is calculated as:

    <p>Total Liabilities / Total Equity</p> Signup and view all the answers

    What does the Equity Multiplier represent?

    <p>Total Assets / Total Equity</p> Signup and view all the answers

    Gross Profit Margin is calculated as:

    <p>Gross Profit / Net Sales</p> Signup and view all the answers

    What is the formula for Operating Margin?

    <p>EBIT / Net Sales</p> Signup and view all the answers

    Pretax Margin is calculated as:

    <p>EBT / Net Sales</p> Signup and view all the answers

    Net Profit Margin is computed using which formula?

    <p>EACS / Net Sales</p> Signup and view all the answers

    Return on Assets (ROA) is calculated as:

    <p>EACS / Total Assets</p> Signup and view all the answers

    Return on Equity (ROE) formula is:

    <p>EACS / Total Equity</p> Signup and view all the answers

    The DuPont Equation combines which factors?

    <p>Return on Sales, Total Asset Turnover, The Equity Multiplier</p> Signup and view all the answers

    How is Earnings per Share calculated?

    <p>EACS / Number of Shares Outstanding</p> Signup and view all the answers

    What is the Dividend Payout Ratio?

    <p>Common Dividends per Share / EPS</p> Signup and view all the answers

    Market Capitalization is computed as:

    <p>Stock Price x Number of Shares Outstanding</p> Signup and view all the answers

    How is the Price-to-Earnings Ratio calculated?

    <p>Price Per Share / Earnings Per Share</p> Signup and view all the answers

    What is the Dividend Yield formula?

    <p>Annual Dividend / Price Per Share</p> Signup and view all the answers

    Study Notes

    Key Accounting Ratio Formulas

    • Net Working Capital: Measures short-term financial health by subtracting current liabilities from current assets.

    • Current Ratio: Indicates liquidity by comparing current assets to current liabilities.

    • Quick Ratio: Assesses immediate liquidity with cash, receivables, and marketable securities against current liabilities.

    • Inventory Turnover: Evaluates inventory efficiency by calculating how often inventory is sold during a period.

    • Days Inventory Outstanding: Determines the average time inventory is held before being sold, derived from inventory turnover.

    • Receivables Turnover: Assesses how efficiently a company collects receivables, comparing net sales to accounts receivable.

    • Days Sales Outstanding: Shows the average number of days it takes to collect payment after a sale, derived from receivables turnover.

    • Total Asset Turnover: Measures how effectively a company uses its assets to generate sales, calculated by net sales divided by total assets.

    • Times-Interest-Earned: Evaluates a firm's ability to meet debt obligations by comparing earnings before interest and taxes (EBIT) to interest expense.

    • Debt Ratio: Indicates the proportion of a company’s assets that are financed through liabilities, expressed as a percentage.

    • Debt-to-Equity Ratio: Compares total liabilities to total equity, indicating the relative proportion of debt and equity financing.

    • Equity Multiplier: Measures financial leverage by comparing total assets to total equity.

    • Gross Profit Margin: Shows profitability by comparing gross profit to net sales as a percentage.

    • Operating Margin: Assesses operational efficiency by comparing EBIT to net sales.

    • Pretax Margin: Provides insights into profitability before taxes, calculated by earnings before taxes (EBT) as a percentage of net sales.

    • Net Profit Margin: Indicates overall profitability by comparing earnings after corporate taxes (EACS) to net sales.

    • Return on Assets (ROA): Measures a company's efficiency in using its assets to generate profit, expressed as a percentage of EACS to total assets.

    • Return on Equity (ROE): Assesses profitability in relation to shareholders' equity by calculating EACS as a percentage of total equity.

    • The DuPont Equation: Breaks down return on equity into three components: return on sales, total asset turnover, and equity multiplier for a comprehensive analysis.

    • Earnings per Share (EPS): Indicates profitability on a per-share basis by dividing earnings available to common shareholders (EACS) by the number of shares outstanding.

    • Dividend Payout Ratio: Represents the percentage of earnings distributed as dividends to shareholders, calculated by common dividends per share divided by EPS.

    • Market Capitalization: Measures a company's total market value, calculated by multiplying stock price by the number of shares outstanding.

    • Price-to-Earning Ratio (P/E): Evaluates the valuation of a company’s stock by comparing price per share to earnings per share.

    • Dividend Yield: Indicates the return on investment from dividends, calculated as the annual dividend divided by the price per share.

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    Description

    Test your knowledge on essential accounting ratios used to assess a company's financial health and operational efficiency. This quiz covers formulas such as Net Working Capital, Current Ratio, Quick Ratio, and more. Perfect for accounting students and professionals looking to reinforce their understanding.

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