Financial Ratios Quiz

Which financial ratio measures a company's ability to cover its short-term liabilities with its short-term assets?

• Return on Assets

• Debt to Equity Ratio

• Current Ratio

• Price to Earnings Ratio

Calculate the Current Ratio for XYZ Corp.

• 1.50

• 1.67

• 1.75

• 2.00

Answer explanation

Answer: 1.67 (Total Current Assets / Total Current Liabilities = 100,000 / 60,000)

Which ratio assesses the profitability of a company relative to its total assets?

• Return on Assets (ROA)

• Inventory Turnover

• Gross Margin

• Current Ratio

Calculate the Return on Assets (ROA) for XYZ Corp.

• 9%

• 11.25%

• 12%

• 15%

Answer explanation

Answer: 11.25% (Net Income / Total Assets = 45,000 / 400,000)

Which ratio measures the amount of net income generated for each dollar invested by shareholders?

• Return on Assets

• Return on Equity (ROE)

• Gross Margin

• Debt to Equity

Calculate the Return on Equity (ROE) for XYZ Corp.

• 20%

• 22.5%

• 25%

• 27.5%

Answer explanation

Answer: 22.5% (Net Income / Total Equity = 45,000 / 200,000)

The Debt to Equity ratio measures:

• Profitability of a company

• Liquidity of a company

• The financial leverage of a company

• Efficiency of a company's operations

Calculate the Debt to Equity Ratio for XYZ Corp.

• 0.5

• 0.7

• 1.0

• 1.2

Answer explanation

Answer: 1.0 (Total Debt / Total Equity = (60,000 + 140,000) / 200,000)

If a company has a high Inventory Turnover ratio, it indicates:

• Low sales volume

• High amount of unsold inventory

• Efficient management of inventory

• The company might be incurring more debt

Calculate the Inventory Turnover for XYZ Corp.

• 5 times

• 6.4 times

• 7.5 times

• 8 times

Answer explanation

Answer: 6.4 times (COGS / Inventory = 320,000 / 50,000)