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Mastering Financial Ratios

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Questions and Answers

Which financial statement is used to calculate financial ratios?

Income statement

Statement of changes in equity

Balance sheet (correct)

Statement of cash flows

Who may use financial ratios to evaluate the overall financial condition of a corporation or organization?

Managers within a firm

Current and potential shareholders

A firm's creditors

All of the above (correct)

How are financial ratios usually expressed?

As a decimal value

Both as a decimal value and an equivalent percent value (correct)

As a whole number

As an equivalent percent value

Which type of ratio measures the availability of cash to pay debt?

Liquidity ratios Signup and view all the answers

Which type of ratio measures how quickly a firm converts non-cash assets to cash assets?

Activity ratios Signup and view all the answers

Which type of ratio measures the firm's ability to repay long-term debt?

Debt ratios Signup and view all the answers

Which type of ratio measures the firm's use of its assets and control of its expenses to generate an acceptable rate of return?

Profitability ratios Signup and view all the answers

Which ratio measures the availability of cash to pay debt?

Current ratio Signup and view all the answers

Which ratio measures the effectiveness of the firm's use of resources?

Stock turnover ratio Signup and view all the answers

Which ratio quantifies the firm's ability to repay long-term debt?

Debt to equity ratio Signup and view all the answers

Which ratio measures investor response to owning a company's stock?

Price to book value ratio Signup and view all the answers

Study Notes

Financial Ratios

Financial ratios are calculated using financial statements.
Financial ratios are used by various stakeholders, including investors, creditors, and management, to evaluate the overall financial condition of a corporation or organization.

Types of Financial Ratios

Liquidity ratios measure the availability of cash to pay debt.
Asset utilization ratios measure how quickly a firm converts non-cash assets to cash assets.
Solvency ratios measure the firm's ability to repay long-term debt.
Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return.
Cash flow ratios measure the availability of cash to pay debt.
Efficiency ratios measure the effectiveness of the firm's use of resources.
Solvency ratios quantify the firm's ability to repay long-term debt.
Market ratios measure investor response to owning a company's stock.

Ratio Expressions

Financial ratios are usually expressed as a decimal value or a percentage.

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Description

Test your knowledge of financial ratios and accounting with this quiz! Explore the importance of ratios in evaluating a company's financial health and learn how they are used by managers and shareholders.