Quiz on Ratio Analysis

What do profitability ratios measure?

• A company's market performance

• A company's ability to generate profit relative to its revenue

• A company's ability to meet its long-term obligations

• A company's efficiency in managing inventory

What does a higher gross profit margin indicate?

• Inefficiency in production

• High revenue generation

• Efficiency in producing goods or services

• High debt levels

What is the formula for the Net Profit Margin?

• Current Assets / Current Liabilities

• Gross Profit / Revenue

• Net Income / Revenue

• Net Income / Total Assets

What does the Current Ratio assess?

• Profitability

• Long-term financial obligations

• Market value

• Short-term financial obligations

What does a Quick Ratio of 1 or higher typically indicate?

• Good short-term financial health

• Poor short-term financial health

• High inventory levels

• High long-term debt

What does the Inventory Turnover ratio measure?

• Sales generated from assets

• Liquidity of a company

• Frequency of inventory sales and replacements

• Profitability of a company

What does a higher Debt to Equity Ratio suggest?

• Higher profitability

• Better asset utilization

• Higher financial risk

• Lower financial risk

What does the Interest Coverage Ratio measure?

• Market performance

• Ability to meet interest payments

• Profitability of a company

• Liquidity of a company

What does Earnings Per Share (EPS) indicate?

• Total revenue generated

• Portion of profit allocated to each share

• Total assets of a company

• Market price per share

What does a high Price-to-Earnings (P/E) Ratio suggest?

• The company has high debt levels

• The market expects future growth

• The company is undervalued

• The company is struggling