Financial Ratios and Analysis

What is the purpose of financial statement analysis?

• To prepare tax reports

• To enable optimal financial decisions

• To record financial transactions

• To calculate employee salaries

Which of the following is a liquidity ratio?

• Gross Profit Margin

• Quick Ratio

• Debt Ratio

• Return on Assets

A high current ratio generally indicates:

• A company has weak liquidity

• A company is not using its assets efficiently

• A company has low inventory levels

• A company has no liabilities

What does the inventory turnover ratio measure?

• How fast inventory is sold and replaced

• The amount of profit earned from inventory sales

• The number of new inventories purchased each year

• The amount of inventory remaining at year-end

What does a low debt ratio generally indicate?

• High risk of bankruptcy

• Poor credit management

• A strong financial position with lower debt

• High reliance on borrowed funds

Which of the following is a profitability ratio?

• Return on Equity (ROE)

• Current Ratio

• Debt Ratio

• P/E Ratio

The Net Profit Margin measures:

• The total sales of a company

• The percentage of profit after all expenses

• The total value of a company’s assets

• The amount of money borrowed by a company

What does the Price-to-Earnings (P/E) ratio indicate?

• A) A company’s ability to pay its short-term liabilities

• B) How much investors are willing to pay per dollar of profit

• C) The total number of shares a company has issued

• D) The difference between revenue and expenses

Why is cross-sectional analysis used in financial statement analysis?

• To compare a company’s performance over multiple years

• To analyze industry trends over time

• To compare a company’s financial results with competitors

• To determine tax liabilities

What is the purpose of financial ratio analysis?

• To assess a company's profitability

• To evaluate a company's liquidity

• To compare a company’s financial results with competitors

• To determine a company's market share