ME 491 Engineering Economy & Management Unit 6: Financial Ratio Analysis

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Which of the following methods is used to remove the effects of size differences in financial analysis?

Comparing operating results with industry averages
Directly comparing monetary amounts
Using historical trends
Calculating financial ratios (correct)

What type of financial information is primarily used to calculate financial ratios?

Balance sheets and income statements (correct)
Cash flow statements
Shareholder reports
Economic indicators

Which aspect of a company's performance is not directly assessed using financial ratio analysis?

Operational efficiency
Liquidity
Profitability
Customer satisfaction (correct)

What is the primary purpose of comparing a firm's financial ratios with those of competitors?

Highlighting relative strengths and weaknesses (B) Signup and view all the answers

Which of the following does not contribute to the calculation and comparison of financial ratios?

Investment attractiveness (C) Signup and view all the answers

What is the primary method used to compare financial ratios of firms of varying sizes?

Ratio analysis (C) Signup and view all the answers

Which of the following is NOT a category of financial ratios?

Inventory Ratios (C) Signup and view all the answers

Which of the following is TRUE about the Current Ratio?

It estimates whether the business can pay debts due within one year from assets that it expects to turn into cash within that year. (A) Signup and view all the answers

Which of the following ratios is NOT used to measure a business’ short-term liquidity?

Debt Ratio (C) Signup and view all the answers

Which of the following is NOT a liquidity ratio?

Profitability Ratio (B) Signup and view all the answers

Which of the following is TRUE about short-term liquidity ratios?

They are based on current assets and current liabilities. (B) Signup and view all the answers

Which of the following is NOT a factor in calculating the Current Ratio?

Long-term liabilities (D) Signup and view all the answers

What is the primary purpose of the inventory turnover ratio?

To evaluate the speed of inventory moving through the firm and its conversion into sales (C) Signup and view all the answers

Which of the following is NOT a benefit of efficiently managing inventory?

Increased operating expenses (B) Signup and view all the answers

Which of the following costs is typically NOT included in cost accounting?

Marketing expenses (B) Signup and view all the answers

Which of the following accounting systems aims to prepare an account to show costs of production, returns, and net profit or loss on an enterprise?

Cost accounting (A) Signup and view all the answers

Which of the following is NOT a common method used to calculate the inventory turnover ratio?

Net income / inventory (A) Signup and view all the answers

Which of the following is NOT a common use of the inventory turnover ratio?

Measuring the success of a firm's credit policy (C) Signup and view all the answers