Accounting Ratios

What are profitability ratios?

• Financial metrics used to assess a company's ability to generate profit relative to its expenses and other costs.

• Financial metrics used to assess a company's ability to generate profit relative to its assets.

• Financial metrics used to assess a company's ability to generate profit relative to its revenue.

• Financial metrics used to assess a company's ability to generate revenue relative to its expenses and other costs.

What are liquidity ratios?

• Financial ratios that measure a company's ability to pay off short-term debts and obligations.

• Financial ratios that measure a company's market value.

• Financial ratios that measure a company's profitability.

• Financial ratios that measure a company's ability to pay off long-term debts and obligations.

What is the formula for current ratio?

• current assets / current liabilities

• current assets + current liabilities

• current assets * current liabilities

• current assets - current liabilities

How is gross profit margin calculated?

• Gross profit margin is calculated by subtracting the cost of goods sold (COGS) from the total revenue and then dividing the result by the total revenue.

• Gross profit margin is calculated by dividing the total revenue by the cost of goods sold (COGS).

• Gross profit margin is calculated by multiplying the cost of goods sold (COGS) by the total revenue.

• Gross profit margin is calculated by adding the cost of goods sold (COGS) to the total revenue and then dividing the result by the total revenue.

Why are profitability ratios important for businesses?

• Profitability ratios are irrelevant for businesses.

• Profitability ratios only measure short-term financial performance.

• Profitability ratios cannot accurately reflect a company's financial health.

• Profitability ratios provide insights into a company's financial health and performance.

Why are liquidity ratios important for businesses?

• Liquidity ratios are not important for businesses because they do not take into account a company's profitability and revenue generation.

• Liquidity ratios are important for businesses because they measure a company's long-term financial stability and growth potential.

• Liquidity ratios are not important for businesses because they only focus on short-term obligations and do not provide a comprehensive view of a company's financial health.

• Liquidity ratios are important for businesses because they measure a company's ability to meet its short-term obligations and assess its financial health.

What does a high current ratio indicate?

• No impact on financial stability or ability to meet short-term obligations.

• Poor financial stability and weak ability to meet short-term obligations.

• Financial stability and strong ability to meet short-term obligations.

• Indication of long-term financial health and profitability.

What does a low current ratio indicate?

• A low current ratio indicates high profitability.

• A low current ratio indicates strong financial stability.

• A low current ratio indicates efficient use of assets.

• A low current ratio indicates financial distress.

What factors can affect gross profit margin?

• Changes in sales volume, changes in the cost of goods sold, pricing strategies, competition, and changes in the product mix.

• Changes in inventory management, changes in distribution costs, changes in exchange rates, changes in government regulations

• Changes in employee salaries, changes in advertising expenses, changes in research and development costs, changes in customer preferences

• Changes in marketing strategies, changes in overhead costs, changes in interest rates, changes in tax rates

How can a company improve its liquidity position?

• By increasing cash outflows and reducing cash inflows.

• By increasing cash inflows and reducing cash outflows.

• By investing in long-term assets.

• By increasing debt and liabilities.