FS/Ratios Practice

Current ratio indicates

• Ability to meet short term obligations

• Efficiency of Management

• Profitability

• None of these.

Answer explanation

Current ratio indicates the ability to meet short term obligations, making it the correct choice.

The liquid ratio should be around

• 4

• 2

• 5

• 1

Answer explanation

The correct liquid ratio is 1, as indicated in the question. Therefore, the liquid ratio should be around 1.

A Business Has The Following:

Machinery = $16,000

Acc receivable = $2,000

Inventory = $5,000

Cash = $10,000

Breeding livestock = $10,000

Current Liabilities = $11,000

Calculate Its Current Ratio

• 3.9

• 2.5

• 1.5

• 12.4

Answer explanation

The current ratio is calculated by dividing current assets by current liabilities. In this case, current assets = $27,000 and current liabilities = $11,000. Therefore, the current ratio is 27,000 / 11,000 = 1.5

A Business Has The Following:

Fixed Assets = $6,000

Cash = $2,000

ST Marketable securities = $5,000

Acc receivable = $4,000

Current Liabilities = $5,000

Calculate Its Current Ratio

• 1.2

• 2.2

• 2.4

• 3.6

Answer explanation

Current Ratio = (Cash + ST Marketable securities + Acc receivable) / Current Liabilities = ($2,000 + $5,000 + $4,000) / $5,000 = $11,000 / $5,000 = 2.2. Therefore, the current ratio is 2.2.

If current liabilities are $100,000 and current assets are $200,000, what is the current ratio?

• 0.50

• 1.20

• 1.50

• 2.00

Answer explanation

The current ratio is calculated by dividing current assets by current liabilities. In this case, $200,000 / $100,000 = 2.00, so the correct answer is 2.00.

What is the difference between current and non current assets?

• There is no difference

• Current assets are the same as current liabilities and non current are not  

• Current assets tend to be easily converted to cash whereas non current are not 

• A company will gain more profit if they use non current only 

Answer explanation

Current assets tend to be easily converted to cash whereas non current are not

What does an increase in the current ratio indicate about a company's short-term financial position?

• Improved liquidity

• Higher profitability

• Increased leverage

• Declining solvency

Answer explanation

An increase in the current ratio indicates improved liquidity as it shows the company has more current assets to cover its current liabilities.

Financial ratios that show how and to what degree a company has financed its assets.

• leverage ratios

• liquidity ratios

• efficiency ratios

• profitability ratios

Answer explanation

The correct answer is leverage ratios because they show how a company has financed its assets through debt and equity.

Financial ratios that tell how much of each dollar of sales, assets, and owner's investments resulted in net profit.

• liquidity ratios

• efficiency ratios

• profitability ratios

• leverage ratios

Answer explanation

The correct choice is profitability ratios as they measure how much of each dollar of sales, assets, and owner's investments resulted in net profit.

Compares the total debt of the firm with the owner's equity.

• debt-to-assets ratio

• debt-to-equity ratio

• asset turnover ratio

• efficiency ratio

Answer explanation

The correct choice is the debt-to-equity ratio, which compares the total debt of the firm with the owner's equity.