Financial Analysis Objectives

What does Working Capital indicate about a company?

• Ability to pay bills

• Ability to make payroll

• Ability to make loan payments

• All of the above

True or False: A current ratio between one and two is considered ideal because it means all of a company’s current liabilities would be covered by current assets.

• True

• False

• 0.5

• 1.0

• 1.5

• 2.0

• 0.75

• 0.80

• 0.85

• 0.90

What is the profitability ratio that measures a company's profitability by revealing how much profit a company generates with the money shareholders have invested?

• Return on equity.

• Gross profit margin.

• Operating profit margin.

• Net profit margin.

What is the profitability ratio that measures the gain or loss generated on an investment relative to the amount of money invested?

• Return on investment.

• Gross profit margin.

• Operating profit margin.

• Net profit margin.

What does the Gross Profit Margin examine?

• A) A company's ability to create cost-effective sellable products

• B) A company's marketing strategy

• C) A company's customer satisfaction

• D) A company's employee performance

• 77.78%

• 75.00%

• 80.00%

• 85.00%

What does the operating margin measure?

• The percentage of total revenue made up of operating income

• The total cost of production

• The net profit of a company

• The total revenue of a company

Fill in the blank: Operating margin is important to creditors and investors because it shows the _______ and profitability of a company’s operations.

• strength

• weakness

• instability

• volatility