Measuring Tools in Accounting

What is the primary purpose of liquidity ratios?

• To determine the market value of a company's assets.

• To measure the profitability of a company over time.

• To evaluate a company's long-term investment potential.

• The primary purpose of liquidity ratios is to assess a company's short-term financial stability.

Which financial statement provides information on cash flow?

• Income Statement

• Cash Flow Statement

• Balance Sheet

• Statement of Retained Earnings

What does a high debt-to-equity ratio indicate?

• It reflects a balanced approach to financing.

• It indicates a strong equity position.

• It shows low financial risk due to minimal debt.

• It indicates higher financial risk due to reliance on debt financing.

How can profitability be assessed using return on equity?

• Profitability can be assessed using return on equity by calculating ROE, which shows the profit generated per dollar of equity.

• Profitability is assessed by calculating total assets.

• Return on equity measures the total revenue generated.

• ROE is calculated by dividing net income by total liabilities.

What is the formula for calculating net profit margin?

• Net Profit Margin = (Net Profit / Total Revenue) x 100

• Net Profit Margin = (Gross Profit / Total Revenue) x 100

• Net Profit Margin = (Net Profit - Total Revenue) x 100

• Net Profit Margin = (Total Revenue / Net Profit) x 100

Why is cash flow analysis important for businesses?

• It is only necessary for large corporations.

• It helps in increasing sales revenue.

• It focuses solely on long-term investments.

• Cash flow analysis is important for managing liquidity, planning for expenses, and making informed financial decisions.

What does a negative cash flow indicate about a company?

• A negative cash flow indicates high profitability.

• A negative cash flow suggests the company has no debts.

• A negative cash flow indicates potential financial difficulties or heavy investment.

• A negative cash flow means the company is expanding rapidly.

Which tool is used to evaluate a company's financial stability over time?

• SWOT analysis

• Market share analysis

• Customer satisfaction surveys

• Financial ratios analysis

What is the purpose of the operating cash flow ratio?

• To determine the market value of a company.

• To assess a company's liquidity and operational efficiency.

• To calculate a company's total assets.

• To evaluate a company's stock performance.

How does working capital affect a company's liquidity?

• Working capital decreases a company's liquidity by tying up cash in inventory.

• Working capital has no impact on a company's ability to pay its debts.

• Working capital positively affects a company's liquidity by ensuring it can meet short-term obligations.

• High working capital indicates a company is struggling to manage its finances.