Quiz on Financial Statements and Ratios

Which of the following best describes the current ratio?

• A) It measures a company's ability to cover its short-term liabilities with its short-term assets.

• B) It indicates how much profit is generated from shareholders' equity.

• C) It shows the percentage of sales that remains after paying for the cost of goods sold.

• D) It measures the proportion of debt used to finance the company's assets.

If a company has a debt-to-equity ratio of 1.5, what does this indicate?

• A) The company has more equity than debt.

• B) The company has equal debt and equity.

• C) The company has 1.5 times more debt than equity.

• D) The company has 1.5 times more equity than debt.

What does a high inventory turnover ratio indicate?

• A) The company has low sales.

• B) The company efficiently manages its inventory.

• C) The company has excess inventory.

• D) The company is experiencing low demand for its products.

Which of the following is NOT included in calculating the quick (acid-test) ratio?

• A) Accounts receivable

• B) Inventory

• C) Cash and cash equivalents

• D) Marketable securities

A company's gross profit margin ratio is primarily used to assess:

• A) Liquidity

• B) Operational efficiency

• C) Profitability

• D) Leverage

Which financial statement shows the total assets, liabilities, and shareholders' equity of a company?

• A) Income Statement

• B) Balance Sheet

• C) Cash Flow Statement

• D) Statement of Retained Earnings

If a company's net income is $200,000 and its average total equity is $1,000,000, what is the Return on Equity (ROE)?

• A) 5%

• B) 10%

• C) 20%

• D) 25%

Which of the following ratios would most likely be used by a potential creditor to assess the likelihood of a company repaying its short-term debts?

• A) Current Ratio

• B) Return on Assets (ROA)

• C) Gross Profit Margin

• D) Earnings per Share (EPS)

In financial statements, which of the following is classified as a non-operating item?

• A) Cost of Goods Sold (COGS)

• B) Sales revenue

• C) Interest expense

• D) Depreciation expense

What does a high price-to-earnings (P/E) ratio generally suggest about a company's stock?

• A) The stock is undervalued.

• B) Investors expect high growth in the future.

• C) The company is experiencing financial distress.

• D) The company has low growth prospects.