Evaluating Startup Financial Performance

What is the formula for calculating the current ratio?

• Current Ratio = Current Liabilities / Current Assets

• Current Ratio = Total Assets / Total Liabilities

• Current Ratio = Current Assets + Current Liabilities

• Current Ratio = Current Assets / Current Liabilities

How does a high quick ratio indicate a company's liquidity?

• A high quick ratio indicates a company is in debt.

• A high quick ratio means the company has low cash reserves.

• A high quick ratio shows the company is investing heavily in long-term assets.

• A high quick ratio shows strong liquidity, indicating the company can meet short-term liabilities with liquid assets.

What does a profitability ratio measure in a startup?

• A profitability ratio measures the ability to generate profit relative to revenue or expenses.

• A profitability ratio measures the total assets of a startup.

• A profitability ratio indicates the market share of a startup.

• A profitability ratio evaluates the startup's employee satisfaction.

Angga is analyzing the financial statements of a company to determine how well it generates profit from its sales. Which profitability ratio should he focus on the most?

• Gross Profit Margin

• Operating Profit Margin

• Net Profit Margin

• Return on Equity

What is the significance of the debt-to-equity ratio in solvency analysis?

• It indicates the total assets owned by a company.

• It reflects the company's market share in its industry.

• The debt-to-equity ratio is significant in solvency analysis as it indicates the level of financial leverage and risk associated with a company's capital structure.

• It measures a company's profitability over time.

How can a company improve its solvency ratios?

• Increase equity

• Increase debt to leverage assets

• Cut down on cash reserves

• Ignore asset management strategies

• Improve cash flow

What are common size financial statements used for?

• To prepare tax returns for companies.

• To calculate the total assets of a company.

• To compare financial performance across different companies and time periods.

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

How do you calculate common size percentages for an income statement?

• Use total assets as the denominator for all calculations.

• Common size percentages are calculated by dividing each income statement item by total revenue and multiplying by 100.

• Add all income statement items together and divide by total expenses.

• Calculate each item as a percentage of net income only.

What does a negative net profit margin indicate about a startup?

• It indicates the startup is operating at a loss.

• It indicates the startup is highly profitable.

• It shows the startup is breaking even.

• It suggests the startup is experiencing rapid growth.

What is the difference between solvency and liquidity?

• Solvency measures profitability; liquidity measures investment returns.

• Solvency is long-term financial health; liquidity is short-term cash availability.

• Solvency is the ability to pay short-term debts; liquidity is the overall financial stability.

• Solvency refers to cash flow management; liquidity is about asset valuation.