Financial Ratio Analysis

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

• 2

• 750,000

• 1.5

• 0.5

Interpret a quick ratio of 1.5 for a company and explain what it indicates about the company's liquidity.

• The quick ratio of 1.5 indicates that the company is struggling with liquidity, as it shows that the company has too many liquid assets and not enough long-term investments.

• The quick ratio of 1.5 indicates that the company has a weak liquidity position, as it shows that the company has too few liquid assets to cover its short-term obligations.

• The quick ratio of 1.5 indicates that the company is in a stable liquidity position, as it shows that the company has just enough liquid assets to cover its short-term obligations.

• The quick ratio of 1.5 indicates that the company has a strong liquidity position, as it shows that the company has enough liquid assets to cover its short-term obligations.

Compare the financial statements of Company A and Company B to identify which company has a higher debt-to-equity ratio.

• The debt-to-equity ratio is always the same for all companies

• The debt-to-equity ratio can only be calculated for publicly traded companies

• The debt-to-equity ratio is not relevant for comparing companies

• The answer will depend on the specific financial statements of Company A and Company B.

Identify the liquidity ratio used to measure a company's ability to meet short-term obligations with its most liquid assets.

• Debt-to-equity ratio

• Current ratio

• Profit margin ratio

• Inventory turnover ratio

Analyze the profitability of a company with a return on equity (ROE) of 15% and explain what this ratio indicates.

• The company is generating a 15% return for every dollar of shareholders' equity, indicating a profitable use of equity and efficient management.

• ROE of 15% indicates that the company is in financial trouble

• ROE of 15% means the company is not utilizing its equity efficiently

• ROE of 15% suggests that the company is not profitable

Understand the solvency of a company with a debt-to-asset ratio of 0.4 and explain what this ratio indicates about the company's financial health.

• A debt-to-asset ratio of 0.4 indicates that the company has a relatively low level of debt compared to its assets, which suggests a strong financial health and solvency.

• A debt-to-asset ratio of 0.4 indicates that the company is not profitable

• A debt-to-asset ratio of 0.4 indicates that the company has a high level of debt compared to its assets

• A debt-to-asset ratio of 0.4 indicates that the company is on the verge of bankruptcy

Calculate the inventory turnover ratio for a company with cost of goods sold of $1,000,000 and average inventory of $200,000.

• Inventory Turnover Ratio = $1,000,000 / $300,000 = 3.33

• Inventory Turnover Ratio = $1,500,000 / $200,000 = 7.5

• Inventory Turnover Ratio = $800,000 / $200,000 = 4

• Inventory Turnover Ratio = $1,000,000 / $200,000 = 5

Interpret a gross profit margin of 25% for a company and explain what it indicates about the company's profitability.

• A gross profit margin of 25% indicates that the company is struggling to cover its operating expenses

• A gross profit margin of 25% indicates that the company is experiencing a decrease in sales

• A gross profit margin of 25% indicates that the company is overvalued in the market

• A gross profit margin of 25% indicates that the company is able to generate a strong profit from its sales after accounting for the cost of goods sold.

Compare the financial statements of Company X and Company Y to identify which company has a higher interest coverage ratio.

• The interest coverage ratio is the same for both companies

• The interest coverage ratio cannot be calculated for Company X and Company Y

• The answer will depend on the actual financial statements of Company X and Company Y, so the specific company with the higher interest coverage ratio needs to be determined based on their financial data.

• The interest coverage ratio is not relevant for comparing companies

Identify the solvency ratio used to measure a company's ability to meet long-term obligations with its available resources.

• Debt to equity ratio

• Profit margin ratio

• Current ratio

• Inventory turnover ratio