Understanding Financial Ratios Quiz

Which of the following is a liquidity ratio?

• Net Profit Margin

• Debt-to-Equity

• Inventory Turnover

• Quick Ratio

A Current Ratio below 1.0 typically indicates...

• Excess profits

• Possible cash flow problems

• Excellent debt management

• Over-investment in equipment

What does the Debt-to-Equity ratio measure?

• Sales compared to assets

• Profit compared to sales

• Borrowed funds compared to owner's equity

• Inventory levels

A high Inventory Turnover ratio usually means...

• Slow-moving inventory

• Efficient inventory management

• Too much inventory

• High debt levels

What does Return on Assets (ROA) indicate?

• Value of the company

• How efficiently assets produce earnings

• Speed of payment collection

• Inventory levels

If a company has a Debt Ratio of 0.9, what does it suggest?

• The company is not profitable

• Most assets are financed by debt

• Inventory is too high

• It has a good net income

What is considered a “good” Current Ratio in most industries?

• 0.5

• 1.0

• 1.5 to 3.0

• 5.0

Which ratio evaluates how well a company generates profit using shareholders’ investments?

• Return on Equity

• Net Profit Margin

• Quick Ratio

• Debt-to-Assets

What is the Cash Ratio formula?

• Cash ÷ Total Liabilities

• (Cash + Equivalents) ÷ Current Liabilities

• Net Income ÷ Cash

• Cash ÷ Total Assets

Which ratio best shows immediate payment ability?

• Net Profit Margin

• Cash Ratio

• Debt Ratio

• Asset Turnover