Y11 Financial Ratios & Analysis

Analysis and Interpretation of Financial Reports assists users in their decision making

• True

• False

Vertical analysis (top-bottom approach) is:

• An analysis of figures from a single accounting period

• An analysis of figures across multiple accounting periods

• A comparison of both financial statements

Measures of profitability or earning capacity are (select three):

• Net profit ratio

• Return on owner's equity

• Gross profit ratio

• Rate of turnover of accounts receivable

• Rate of turnover of inventories

Measures of liquidity are (select two):

• Net profit ratio

• Return on owner's equity

• Rate of turnover of inventories

• Rate of turnover of accounts receivable

• Gross profit ratio

Which ratio measures net profit per dollar of service or net sales?

• Net profit ratio

• Return on owner's equity

• Rate of turnover of inventories

• Rate of turnover of accounts receivable

Which ratio measures return on investment provided by owners?

• Net profit ratio

• Return on owner's equity

• Rate of turnover of inventories

• Rate of turnover of accounts receivable

Which ratio measures the effectiveness of collections of customer credit?

• Net profit ratio

• Return on owner's equity

• Rate of turnover of inventories

• Rate of turnover of accounts receivable

Which ratio measures how quickly inventory is sold?

(thus indicating the liquidity of inventories)

• Net profit ratio

• Return on owner's equity

• Rate of turnover of inventories

• Rate of turnover of accounts receivable

The benchmark for Return on Owner's Equity is current interest rates.

• True

• False

The formula for Return on Owner's Equity is:

• Net credit sales /

  Average inventories

• Cost of goods sold /

  Average inventories

• (Net profit /

  Average owner's equity)

  x 100

• (Gross profit /

  Net sales)

  x 100