Financial Analysis and Liquidity Quiz

What is the formula to calculate working capital?

• Current assets - Current liabilities

• Current assets + Current liabilities

• Fixed assets - Current assets

• Fixed assets + Current liabilities

What does the current ratio measure?

• Profitability of the company

• Liquidity of the company

• Solvency of the company

• Efficiency of the company

What does a current ratio of 1.54 indicate?

• The company has $1.54 of long-term debt for every $1 of assets

• The company has $1.54 for every $1 of short-term debt

• The company has $1.54 of short-term debt for every $1 of assets

• The company has $1.54 for every $1 of long-term debt

What does the acid-test ratio exclude from the current assets?

• Cash and cash equivalents

• Accounts receivable

• Inventories

• Prepaid expenses

What does a high debt-to-total-assets ratio indicate?

• The company relies more on equity financing

• The company relies more on debt financing

• The company has low financial leverage

• The company has high liquidity

What does a debt-to-equity ratio of 0.3983 indicate?

• The company has 39.83% equity financing

• The company has 60.17% equity financing

• The company has 60.17% debt financing

• The company has 39.83% debt financing

What does a debt-to-equity ratio above 50% typically indicate?

• High profitability and low risk

• Unstable cash flows and small fixed assets

• Low profitability and high risk

• Stable cash flows and large fixed assets

What does the quick ratio measure?

• Ability to cover short-term obligations with liquid assets

• Ability to generate profits from assets

• Ability to pay dividends to shareholders

• Ability to cover long-term obligations with liquid assets

When is the current ratio considered reasonable for a company?

• When it is below 1

• When it is exactly 1

• When it is above 3

• When it is above 2

What does the liquidity ratio indicate?

• The company's ability to pay long-term debts with liquid assets

• The company's ability to generate profits from assets

• The company's ability to invest in new projects

• The company's ability to cover short-term obligations with liquid assets