Financial Statement Analysis Quiz

What is the formula for calculating the current ratio?

• Current Ratio = Net Income / Total Liabilities

• Current Ratio = Fixed Assets / Current Liabilities

• Current Ratio = Current Assets / Current Liabilities

• Current Ratio = Total Assets / Total Liabilities

Explain the significance of the quick ratio in financial statement analysis.

• The quick ratio is only relevant for non-profit organizations

• The quick ratio has no significance in financial statement analysis

• The quick ratio is significant in financial statement analysis because it provides insight into a company's short-term liquidity and ability to cover immediate liabilities.

• The quick ratio is used to measure long-term solvency of a company

Calculate the current ratio for a company with current assets of $500,000 and current liabilities of $250,000.

• 2

• 1.5

• 0.5

• 3

What does a high debt-to-equity ratio indicate about a company's financial health?

• Strong financial position

• Financial instability

• High profitability

• Low risk

Discuss the importance of the return on assets (ROA) ratio in evaluating a company's performance.

• It measures the efficiency of the company in using its assets to generate profit.

• It measures the number of employees in the company

• It evaluates the company's customer satisfaction

• It calculates the company's total revenue

Calculate the quick ratio for a company with current assets of $300,000, inventory of $100,000, and current liabilities of $150,000.

• 0.75

• 1.33

• 1.1

• 2.5

Why is the price-earnings (P/E) ratio considered important in financial analysis?

• It is used to determine the company's marketing strategy

• It has no impact on the company's performance

• It is only relevant for small businesses

• It provides insight into the valuation of a company's stock and its potential for future growth.

Explain the concept of the gross profit margin and its relevance in financial statement analysis.

• The gross profit margin is a measure of a company's total revenue

• The gross profit margin is irrelevant in financial statement analysis

• The gross profit margin only reflects a company's marketing strategy

• The gross profit margin is a financial metric that measures a company's efficiency in generating profit from its revenue. It is relevant in financial statement analysis as it provides insight into a company's pricing strategy, production efficiency, and overall financial health.

What does a low inventory turnover ratio suggest about a company's operations?

• The company is efficiently managing its inventory and has no excess or obsolete inventory.

• The company is not efficiently managing its inventory and may have excess or obsolete inventory.

• The company is experiencing high demand for its products and is selling inventory quickly.

• The company is not managing its inventory well and has a shortage of inventory.

Calculate the debt-to-equity ratio for a company with total debt of $1,000,000 and total equity of $500,000.

• 2

• 0.5

• 1.5

• 3