WorksheetsFinancial Ratios Worksheet
Total questions: 25
Worksheet time: 1hrs 3mins
Which of the following groups is primarily interested in a company's financial ratios to determine the short-term ability to repay loans and interest?
Company Management
Regulatory Agencies
Equity Investors
Creditors/Lenders
Which of the following is considered the most reliable primary source of financial data for calculating a public company's financial ratios?
Unverified industry blog posts
A company's official press release
The company's annual report (Form 10-K) filed with the SEC
Competitors' financial summaries
A ratio that measures a company's ability to meet its immediate, short-term obligations using its most liquid assets is categorized as a:
Solvency ratio
Liquidity ratio
Profitability ratio
Efficiency ratio
If a company has Current Assets of ₹5,00,000 and Current Liabilities of ₹2,00,000, what is its Current Ratio?
0.40:1
2.50:1
3.00:1
1.50:1
A high Inventory Turnover ratio, relative to the industry average, most likely indicates which of the following about a company?
The company is efficiently managing its inventory and rarely holds excess stock.
The company has too much cash tied up in slow-moving inventory.
The company is struggling to sell its products.
The company is not generating enough sales.
The primary limitation of using financial ratios for analysis is that they:
Only use data from the Balance Sheet, excluding income and cash flow information.
Are based on historical data and may not accurately predict future performance.
Provide an absolute measure of performance without the need for comparison.
Can only be calculated for private, non-publicly traded companies.
A company has Net Income of ₹10,00,000 and Total Assets of ₹50,00,000. What is the Return on Assets (ROA)?
500%
20%
5%
10%
When comparing a company's financial ratios over several periods (e.g., five years), this is known as:
Inter-company analysis
Industry benchmarking
Trend analysis (Time-series analysis)
Cross-sectional analysis
Which ratio category is most relevant for a company's management team when assessing how effectively they are utilizing company resources like assets or accounts receivable?
Solvency ratios
Liquidity ratios
Efficiency ratios
Market ratios
Which of the following calculation results would most concern a long-term creditor (lender) regarding a company's ability to handle its debt load?
A Current Ratio of 2.5:1
A Debt-to-Equity Ratio of 4.0:1
A Gross Profit Margin of 40%
An Acid-Test (Quick) Ratio of 1.5:1
The primary reason that different accounting methods (e.g., FIFO vs. LIFO for inventory) pose a challenge to financial ratio analysis is that they:
Make calculating the ratios mathematically impossible.
Introduce subjectivity into the interpretation of the ratio results.
Can distort the comparability of ratios between different companies.
Are not permitted under Generally Accepted Accounting Principles (GAAP).
A high Price-to-Earnings (P/E) ratio, compared to the industry average, is often interpreted by investors as:
The company's stock is undervalued.
Investors expect high future earnings growth.
The company has poor management and low profitability.
The company is likely to declare bankruptcy soon.
If a company's Gross Profit Margin has decreased from 35% to 25% over the last three years, but its Operating Profit Margin has remained steady, the company is most likely experiencing:
Decreased operating expenses (SG&A).
Increased cost of goods sold (COGS).
An increase in non-operating income.
Higher interest expense on debt.
Which user of financial analysis is most focused on the Solvency ratios to assess the long-term risk of a company, particularly its ability to sustain operations and pay all long-term debt?
Tax Authorities
Short-term Suppliers
Prospective Equity Investors
Company Employees
A company calculates its Accounts Receivable Turnover ratio is 5.0. If its annual Credit Sales were ₹20,00,000, what is its approximate Average Collection Period in days (assume 365 days in a year)?
73 days
5 days
25 days
182.5 days
A company reports Revenue from Operations of ₹80,00,000, Cost of Goods Sold of ₹40,00,000, and Operating Expenses (including SG&A) of ₹10,00,000. What is the Operating Profit Margin?
50.0%
37.5%
30.0%
25.0%
If a company has Total External Debt of ₹45,00,000 (both short and long-term) and Total Shareholders' Equity of ₹15,00,000, what is the Debt-to-Equity Ratio?
0.33:1
4.50:1
3.00:1
1.50:1
A company's Current Ratio is 3.0:1, but its Acid-Test (Quick) Ratio is only 0.8:1. This discrepancy strongly suggests that:
The company has a low level of accounts receivable.
The company is highly reliant on debt financing.
A significant portion of its current assets is tied up in inventory.
The company is efficiently utilizing its fixed assets.
A manufacturer sees its Average Collection Period increase from 40 days to 65 days over a year, while industry average remains 45 days. This change most likely indicates:
The company has become less efficient at managing inventory.
The company has implemented stricter credit terms for its customers.
The company is struggling to convert its credit sales into cash quickly.
The company's fixed assets are being underutilized.
A firm has Equity Capital of ₹25,00,000 and Long-Term Debt of ₹15,00,000. Its Earnings Before Interest and Taxes (EBIT) is ₹8,00,000. What is its Return on Capital Employed (ROCE)?
10.0%
20.0%
32.0%
53.3%
A business generated Sales (Revenue) of ₹60,00,000 during the year. Its opening Total Assets were ₹15,00,000 and closing Total Assets were ₹25,00,000. What is the Total Asset Turnover ratio?
4.0 times
3.0 times
2.4 times
2.0 times
If a company has Earnings Before Interest and Taxes (EBIT) of ₹12,00,000 and its annual interest expense is ₹3,00,000, what is its Interest Coverage Ratio?
0.25 times
4.0 times
9.0 times
15.0 times
If a company's Return on Assets (ROA) is 10% and its Return on Equity (ROE) is 15%, the difference is primarily explained by the company's:
Inventory management efficiency.
Use of financial leverage (debt).
High tax rate.
Low dividend payout policy.
A significant limitation of ratio analysis, especially during periods of high inflation, is that it relies on historical cost accounting. This means that:
Revenue figures are often overstated.
Fixed assets (like land and buildings) may be undervalued on the balance sheet.
Short-term liabilities are consistently understated.
Profit margins are always calculated correctly.
A company's Debt-to-Equity ratio is calculated as 5.5:1, significantly higher than the industry average of 1.5:1. To improve its financial structure and reduce solvency risk, the management should primarily focus on:
Decreasing its Accounts Payable immediately.
Increasing its cash sales to improve liquidity.
Issuing more equity (shares) or aggressively paying down existing debt.
Increasing its inventory turnover ratio.
