Ratio analysis

1.       In profitability analysis, when the CGS/Sales ratio is declining from period to period

• A)       The company is exhibiting sound control of costs

• B)     The company’s management of costs is spiraling out of control

• C)       The company is not properly managing the costs of supplies and raw materials

• D)       The company is focusing on costs of goods sold and not focused on other costs (sales, marketing and promotion)

2.       The company’s ROE

• a)       Will decrease if the company’s CGS/Sales ratio declines

• b)       Will increase if the company’s SGA/Sales ratio declines

• c)       Will increase if the company prefers long-term debt vs. short-term debt

• d)       Will increase if the company’s Revenues/Avg.-Assets ratio declines

3.       A company’s Return on Equity (ROE)

• a)       Will increase if the company avoids debt and fund itself entirely from equity

• b)       Will increase if operating costs decline, relatively to trends in revenues

• c)       Will decrease if it decides to take on more debt relative to equity

• d)       Will decline if the company’s asset-turnover (productivity) ratio is rising

4.       As the NPAT/Sales ratio decreases, then the company

• a)       Is not managing operating costs and expenses as efficiently

• b ) Will still exhibit ample means to be able to manage debt obligations at any level

• c)       Will demonstrate sufficient liquidity on the balance sheet

• d)       Is indifferent to the amount of debt on the balance sheet

5. An assessment of liquidity measures

• a)      The level of available cash and the ability to raise cash to pay down short-term obligations

• b)      The ability of a company to defer paying down debt obligations

• c)      The level of non-current assets on the balance sheet

• d)      The amount of short-term debt at statement date