Master Financial Ratios
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Questions and Answers

Which of the following statements is true about a current ratio of 2 to 1 for a company in any industry?

  • A current ratio of 2 to 1 is sometimes acceptable. (correct)
  • A current ratio of 2 to 1 is never acceptable.
  • I don't know.
  • A current ratio of 2 to 1 is always acceptable.

    • What is a banker or trade creditor most concerned about when evaluating a firm?

  • A firm's solvency ratios.
  • A firm's profitability ratios. (correct)
  • I don't know.
  • A firm's liquidity ratios.

    • How do asset utilization ratios relate balance sheet assets to income statement sales?

  • Asset utilization ratios assess the profitability of balance sheet assets.
  • Asset utilization ratios measure the liquidity of balance sheet assets.
  • I don't know.
  • Asset utilization ratios compare balance sheet assets to income statement sales. (correct)

    • What do debt utilization ratios indicate about the strength of a firm?

    <p>Debt utilization ratios indicate the strength of the firm regarding its coverage of interest payments.</p> Signup and view all the answers

    What does the debt-to-equity ratio measure?

    <p>The debt-to-equity ratio measures a firm's financial leverage.</p> Signup and view all the answers

    Which one of the following statements is true about a current ratio of 2 to 1 for a company in any industry?

    <p>B) It is sometimes acceptable</p> Signup and view all the answers

    What is the purpose of asset utilization ratios?

    <p>C) Relate balance sheet assets to income statement sales</p> Signup and view all the answers

    What do debt utilization ratios indicate about the strength of a firm?

    <p>B) The firm's coverage of interest payments</p> Signup and view all the answers

    Which of the following statements is true about the debt-to-equity ratio?

    <p>A) It measures a firm's financial leverage</p> Signup and view all the answers

    What does the return on assets (ROA) measure?

    <p>D) The company's ability to generate profit with shareholders' investments</p> Signup and view all the answers

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