Ratio Analysis: Master Financial Ratios for Business Success

Question 1

Which ratio is used to measure a company's ability to pay its short-term debts?

Accepted Answer

Current ratio

Answer

Debt-to-equity ratio

Answer

Return on equity

Answer

Inventory turnover ratio

Question 2

Which financial ratio measures a company's ability to meet its short-term financial commitments?

Accepted Answer

Current Ratio

Answer

Return on Equity

Answer

Debt-to-Asset Ratio

Question 3

Which of the following is NOT a type of financial ratio used to assess a company's financial health?

Accepted Answer

Return on equity

Answer

Liquidity ratio

Answer

Profitability ratio

Answer

Solvency ratio

Question 4

Which ratio indicates a company's capacity to fulfill its short-term financial commitments?

Accepted Answer

Current ratio

Answer

Debt-to-equity ratio

Answer

Gross profit margin

Answer

Inventory turnover ratio

Question 5

Which financial ratio is the most direct indicator of a company's ability to meet its short-term financial obligations?

Accepted Answer

Current ratio

Answer

Return on assets

Answer

Debt-to-equity ratio

Answer

Gross profit margin

Question 6

Which financial ratio is used to evaluate a company's ability to meet its short-term obligations?

Accepted Answer

Current Ratio

Answer

Debt-to-Equity Ratio

Answer

Return on Assets

Answer

Inventory Turnover Ratio

Question 7

Which ratio is used to specifically evaluate a company's ability to cover its short-term financial commitments?

Accepted Answer

Current ratio

Answer

Debt-to-equity ratio

Answer

Return on assets ratio

Answer

Inventory turnover ratio

Question 8

Which financial ratio is used to measure a company's ability to meet its short-term financial obligations?

Accepted Answer

Current Ratio

Answer

Inventory Turnover Ratio

Answer

Return on Assets

Answer

Debt-to-Equity Ratio

Question 9

A high Debt-to-Equity Ratio generally indicates:

Accepted Answer

Increased financial risk

Answer

Lower operational efficiency

Answer

Higher profitability

Answer

Improved financial stability

Question 10

Which financial ratio measures the percentage of sales revenue that a company retains as gross profit?

Accepted Answer

Gross Profit Margin

Answer

Return on Assets

Answer

Net Profit Margin

Answer

Operating Profit Margin

Question 11

An Inventory Turnover Ratio of 6 indicates that:

Accepted Answer

The company sells its inventory approximately 6 times per year

Answer

The company holds inventory for an average of 6 months

Answer

The company's inventory is worth 6 times its cost

Answer

The company has 6 months of inventory on hand

Question 12

The formula for calculating the Return on Equity (ROE) is:

Accepted Answer

Net Income / Shareholder Equity

Answer

Gross Profit / Total Revenue

Answer

Net Income / Total Assets

Answer

Operating Profit / Total Assets

Question 13

Which financial ratio would be most relevant for assessing a company's ability to meet its long-term financial obligations?

Accepted Answer

Debt-to-Asset Ratio

Answer

Inventory Turnover Ratio

Answer

Current Ratio

Question 14

The primary objective of ratio analysis is to:

Accepted Answer

Provide insights into a company's financial performance and health

Answer

Determine the intrinsic value of a company

Answer

Predict future stock prices

Question 15

The financial ratio that measures a company's profitability relative to its net sales is the:

Accepted Answer

Net Profit Margin

Answer

Return on Assets

Answer

Operating Profit Margin

Answer

Gross Profit Margin

Question 16

A company has total assets of £500,000 and net income of £50,000. What is its Return on Assets (ROA)?

Accepted Answer

10%

Answer

20%

Answer

15%

Answer

5%

Question 17

Which financial ratio measures the efficiency of a company's inventory management?

Accepted Answer

Inventory Turnover Ratio

Answer

Debt-to-Equity Ratio

Answer

Acid-Test Ratio

Answer

Return on Equity

Question 18

A company's Quick Ratio is calculated to be 0.75. This implies that:

Accepted Answer

The company has 75% of its current liabilities covered by liquid assets.

Answer

The company's solvency is weak.

Answer

The company is unable to meet its current liabilities.

Question 19

Which ratio indicates the percentage of a company's earnings that are distributed to shareholders as dividends?

Accepted Answer

Dividend Payout Ratio

Answer

Gross Profit Margin

Answer

Return on Equity

Question 20

A company has an Acid-Test Ratio of 1.2. This means that:

Accepted Answer

The company has enough liquid assets to cover 120% of its current liabilities.

Answer

The company has a high level of financial risk.

Answer

The company's liquidity position is weak.

Question 21

Which of the following is NOT a limitation of using financial ratios?

Accepted Answer

Ratios can provide valuable insights into a company's financial performance.

Answer

Ratios may not always accurately reflect a company's true financial position.

Answer

Ratios can be affected by accounting policies and industry norms.

Question 22

Which ratio measures a company's ability to meet its short-term financial obligations?

Accepted Answer

Current Ratio

Answer

Return on Equity

Answer

Inventory Turnover Ratio

Answer

Debt-to-Asset Ratio

Question 23

What does a high debt-to-equity ratio indicate?

Accepted Answer

Increased financial risk

Answer

Improved cash flow

Answer

Strong asset management

Answer

High profitability

Question 24

Which ratio provides insights into a company's profitability relative to its revenue?

Accepted Answer

Gross Profit Margin

Answer

Current Ratio

Answer

Debt-to-Equity Ratio

Answer

Inventory Turnover

Question 25

Which ratio evaluates a company's ability to generate cash from its core operations?

Accepted Answer

Operating Cash Flow Ratio

Answer

Debt-to-Asset Ratio

Answer

Current Ratio

Answer

Return on Investment

Question 26

What is the primary purpose of DuPont Analysis?

Accepted Answer

Decomposing return on equity into profitability, efficiency, and leverage

Answer

Assessing a company's financial risk

Answer

Analyzing a company's cost of capital

Question 27

Which ratio measures the proportion of assets financed by shareholders' equity?

Accepted Answer

Equity Ratio

Answer

Return on Assets

Answer

Current Ratio

Answer

Interest Coverage Ratio

Question 28

Which type of ratio compares a company's financial performance against industry benchmarks?

Accepted Answer

Industry Comparison Ratio

Answer

Financial Ratio

Answer

Projected Ratio

Answer

Historical Ratio

Question 29

Which financial ratio measures a company's capacity to repay its short-term obligations?

Accepted Answer

Current ratio

Answer

Return on equity

Answer

Asset turnover ratio

Answer

Debt-to-equity ratio

Question 30

A company with a high debt-to-equity ratio is considered to be:

Accepted Answer

Highly leveraged

Answer

Financially stable

Answer

Soluble

Answer

Liquid

Question 31

Which of the following ratios gauges a company's proficiency in utilizing its assets?

Accepted Answer

Asset turnover ratio

Answer

Earnings per share

Answer

Return on assets

Answer

Gross profit margin

Question 32

A company with a high gross profit margin is likely to be:

Accepted Answer

Profitable

Answer

Soluble

Answer

Efficient

Answer

Liquid

Question 33

Which of the following is NOT a classification of financial ratios?

Accepted Answer

Market ratio

Answer

Liquidity ratio

Answer

Profitability ratio

Answer

Solvency ratio

Question 34

When comparing financial ratios across companies, it is essential to consider:

Accepted Answer

Industry benchmarks

Answer

Future projections alone

Answer

Historical data alone

Answer

Solely absolute values

Question 35

A company with a high inventory turnover ratio likely has:

Accepted Answer

Efficient inventory management

Answer

Excessive inventory

Answer

Poor sales performance

Answer

High levels of waste

Question 36

Which ratio is calculated by dividing net income by total assets?

Accepted Answer

Return on assets

Answer

Asset turnover ratio

Answer

Current ratio

Answer

Gross profit margin

Question 37

In analyzing financial ratios, it is crucial to consider:

Accepted Answer

Context and industry norms

Answer

Solely future projections

Answer

Solely historical data

Answer

Solely absolute values

Question 38

Which of the following ratios measures a company's ability to meet its short-term financial obligations?

Accepted Answer

Current ratio

Answer

Profit margin ratio

Answer

Debt-to-equity ratio

Answer

Asset turnover ratio

Question 39

A company's solvency ratio is calculated as:

Accepted Answer

Total liabilities / Total assets

Answer

Sales revenue / Total expenses

Answer

Current assets / Current liabilities

Answer

Total assets / Total liabilities

Question 40

The asset turnover ratio measures:

Accepted Answer

How efficiently a company uses its assets to generate sales

Answer

How much debt a company has relative to its equity

Answer

How quickly a company can collect its accounts receivable

Question 41

A company with a high debt-to-equity ratio is considered to be:

Accepted Answer

More risky

Answer

More efficient

Answer

Less risky

Answer

More profitable

Question 42

Which of the following is a limitation of using financial ratios?

Accepted Answer

They can be manipulated by companies

Answer

They are not relevant for all industries

Answer

They are too difficult to calculate

Answer

They are only useful for large companies

Question 43

When comparing financial ratios, it is important to consider:

Accepted Answer

Industry benchmarks

Answer

Absolute values only

Answer

Historical trends only

Answer

Projected values only

Question 44

Which of the following ratios is used to assess a company's ability to pay its long-term debt obligations?

Accepted Answer

Times interest earned ratio

Answer

Debt-to-equity ratio

Answer

Current ratio

Answer

Asset turnover ratio

Question 45

A company's inventory turnover ratio is 5. This means that:

Accepted Answer

The company sells its inventory 5 times per year

Answer

The company's inventory is worth 5 times its sales

Answer

The company needs 5 years to sell its inventory

Answer

The company holds 5 times more inventory than it sells

Question 46

Which of the following is NOT a type of financial ratio?

Accepted Answer

Return on emotions

Answer

Debt-to-equity ratio

Answer

Return on equity

Answer

Gross profit margin

Question 47

A company has current assets of £100,000 and current liabilities of £50,000. What is its current ratio?

Accepted Answer

2.0

Answer

2.5

Answer

1.5

Answer

0.5

Question 48

Which of the following ratios is most appropriate for assessing a company's ability to meet its long-term financial obligations?

Accepted Answer

Debt-to-equity ratio

Answer

Quick ratio

Answer

Inventory turnover ratio

Answer

Gross profit margin

Question 49

A company has a net income of £50,000 and sales revenue of £250,000. What is its profit margin?

Accepted Answer

20%

Answer

40%

Answer

5%

Answer

10%

Question 50

A company has an average inventory of £20,000 and cost of goods sold of £100,000. What is its inventory turnover ratio?

Accepted Answer

5

Answer

10

Answer

0.2

Answer

2

Question 51

Which of the following statements is TRUE regarding financial ratios?

Accepted Answer

Ratios can be used to compare a company's performance to its competitors or industry averages.

Answer

Ratios are always a reliable indicator of a company's future performance.

Answer

Ratios are only useful for analyzing a company's financial health in a single point in time.

Question 52

A company has a high debt-to-equity ratio. This indicates that the company:

Accepted Answer

Is heavily reliant on debt financing.

Answer

Has a strong cash flow.

Answer

Is highly profitable.

Question 53

A company has a low inventory turnover ratio. This could indicate that the company is:

Accepted Answer

Holding too much inventory.

Answer

Efficiently managing its inventory.

Answer

Selling its inventory too quickly.

Answer

Experiencing high demand for its products.

Question 54

Which of the following is NOT a limitation of ratio analysis?

Accepted Answer

Ratios can provide a clear understanding of a company's future performance.

Answer

Ratios can be manipulated by companies to present a more favorable picture.

Answer

Ratios can be difficult to compare across different companies in the same industry.

Question 55

A company's return on equity (ROE) is 15%. This means that for every £1 of equity invested, the company generates:

Accepted Answer

£0.15 of profit.

Answer

£0.015 of profit.

Answer

£1.15 of profit.

Answer

£15 of profit.

Question 56

A company's accounts payable turnover ratio is 10. This indicates that the company:

Accepted Answer

Pays its suppliers on average in 36.5 days.

Answer

Has a very long payment cycle.

Answer

Is facing financial difficulties.

Answer

Pays its suppliers on average in 10 days.