Financial Statement & Analysis

Which of the following ratios measures a company's ability to meet its short-term obligations?

• Current Ratio

• Debt-to-Equity Ratio

• Gross Profit Margin

• Return on Equity

Which of the following is considered a liquidity ratio?

• Current Ratio

• Debt Ratio

• Gross Profit Margin

• Return on Assets

Given the following information, calculate the current ratio:

• Current Assets: $150,000

• Current Liabilities: $100,000

• 1.2

• 1.5

• 1.8

• 2.0

Answer explanation

• Answer: b) 1.5 (Current Ratio = Current Assets / Current Liabilities = $150,000 / $100,000 = 1.5)

A company has the following financial data:

• Net Income: $50,000

• Total Assets: $500,000

• Calculate the Return on Assets (ROA).

• 5%

• 8%

• • 10%

• 12%

Answer explanation

• Answer: c) 10% (ROA = Net Income / Total Assets = $50,000 / $500,000 = 0.10 or 10%)

Using the provided data, calculate the inventory turnover ratio:

• Cost of Goods Sold: $400,000

• Average Inventory: $100,000

• 2 times

• 3 times

• 4 times

• 5 times

Answer explanation

• Answer: c) 4 times (Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory = $400,000 / $100,000 = 4)

Calculate the debt-to-equity ratio using the following information:

• Total Liabilities: $300,000

• Total Equity: $700,000

• 0.3

• 0.5

• 0.7

• 1.0

Answer explanation

• Answer: b) 0.5 (Debt-to-Equity Ratio = Total Liabilities / Total Equity = $300,000 / $700,000 = 0.43)