Financial Ratios and Capital Types Quiz

What is the total value of fixed assets owned by a business?

• Fixed capital
• Current capital
• Liquid capital
• Working capital

Which type of capital refers to the value of all current assets owned by a business?

• Fixed capital
• Current/circulating capital
• Liquid capital
• Working capital

Liquid capital is calculated as:

• Total assets - Total liabilities
• Current assets - Inventory
• Current assets + Inventory
• Current liabilities - Current assets

Working capital ensures a business can operate on a daily basis by providing:

• Funding for fixed assets
• Cash available for day-to-day operations
• Funds for acquiring long-term investments
• Reserves for unexpected emergencies

Capital employed is the value of assets that contribute to a company's ability to generate revenue, calculated as:

• Total assets - Current liabilities
• Total assets - Total liabilities
• Current assets - Current liabilities
• Fixed assets + Current assets

Net worth, also called equity or capital owned, is calculated as:

• Total assets - Total liabilities
• Current assets - Current liabilities
• Fixed assets - Fixed liabilities
• Working capital + Capital employed

The working capital ratio, also called the current ratio, measures a firm's ability to pay off current liabilities with current assets. This ratio is considered 'favorable' when it exceeds:

• 0.5
• 0.75
• 1
• 1.5

The quick ratio, also called the acid test ratio, measures a company's ability to convert current assets (except inventory) into cash to pay off current liabilities. What is the formula for this ratio?

• Current assets / Current liabilities
• Cash + Accounts receivable / Current liabilities
• Current assets - Inventory / Current liabilities
• Working capital / Current liabilities

A company has the following information: 7 year loan = $2,000,000, Machinery = $1,400,000, Furniture = $1,000,000, Land = $4,800,000, 4 year loan = $500,000, Bank overdraft = $70,000, Creditors = $150,000, Debtors = $580,000, Cash at hand = $900,000, Stock = $550,000, Cash at bank = $700,000. What is the company's capital employed?

• $9,730,000
• $8,530,000
• $7,730,000
• $6,730,000

Using the information provided in the previous question, what is the company's borrowed capital?

• $2,500,000
• $2,720,000
• $3,000,000
• $3,220,000