Ratio Analysis: Master Company Financial Comparisons

Question 1

The current ratio is a liquidity ratio that indicates a company's ability to:

Accepted Answer

Repay its short-term obligations

Answer

Generate profits

Answer

Manage its inventory

Answer

Pay its long-term debts

Question 2

Which of the following ratios is used to evaluate a company's profitability?

Accepted Answer

Return on assets

Answer

Debt-to-equity ratio

Answer

Inventory turnover

Answer

Current ratio

Question 3

Which of the following ratios is used to evaluate a company's efficiency in managing its inventory?

Accepted Answer

Inventory turnover

Answer

Current ratio

Answer

Return on equity

Answer

Debt-to-assets ratio

Question 4

The price-to-earnings ratio is an example of a:

Accepted Answer

Market value ratio

Answer

Profitability ratio

Answer

Solvency ratio

Answer

Liquidity ratio

Question 5

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

Accepted Answer

Debt-to-equity ratio

Answer

Current ratio

Answer

Acid-test ratio

Answer

Quick ratio

Question 6

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

Accepted Answer

2

Answer

1.5

Answer

2.5

Answer

3

Question 7

Which of the following ratios measures a company's ability to meet its interest payments?

Accepted Answer

Times interest earned ratio

Answer

Debt-to-asset ratio

Answer

Return on equity

Answer

Gross profit margin

Question 8

A company has a return on equity of 12%. What does this indicate?

Accepted Answer

For every £1 of equity, the company generates £0.12 of profit

Answer

The company has a profit margin of 12%

Answer

The company has a net profit margin of 12%

Answer

The company has a debt-to-equity ratio of 12%

Question 9

Which of the following ratios is used to assess a company's long-term financial health?

Accepted Answer

Debt-to-asset ratio

Answer

Current ratio

Answer

Return on investment

Answer

Gross profit margin

Question 10

A company has a debt-to-asset ratio of 50%. What does this mean?

Accepted Answer

The company's assets are financed 50% by debt

Answer

The company's liabilities are financed 50% by debt

Answer

The company has a current ratio of 50%

Answer

The company has a profit margin of 50%

Question 11

Which of the following is NOT a liquidity ratio used to assess a company's ability to meet its short-term obligations?

Accepted Answer

Debt-to-equity ratio

Answer

Current ratio

Answer

Quick ratio

Answer

Cash ratio

Question 12

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

Accepted Answer

The company has a high level of borrowing relative to its equity

Answer

The company has a low level of borrowing relative to its equity

Answer

The company has a negative net worth

Answer

The company is financially sound

Question 13

Which of the following ratios is used to measure a company's profitability and return to shareholders?

Accepted Answer

Return on equity

Answer

Gross profit margin

Answer

Inventory turnover ratio

Answer

Quick ratio

Question 14

What does a low inventory turnover ratio suggest?

Accepted Answer

The company is holding too much inventory relative to its sales

Answer

The company is selling its inventory too quickly

Answer

The company is not purchasing enough inventory

Answer

The company has ample storage space

Question 15

Which of the following factors is NOT relevant when comparing ratio analysis data?

Accepted Answer

The company's marketing strategies

Answer

Industry averages

Answer

Company size

Answer

Historical ratios

Question 16

What is the primary purpose of horizontal analysis in ratio analysis?

Accepted Answer

To compare a company's ratios over time to identify trends

Answer

To compare a company's ratios to industry averages

Answer

To predict a company's future financial performance

Answer

To evaluate the effectiveness of a company's management team

Question 17

Which of the following is a limitation of using ratio analysis?

Accepted Answer

It can be affected by differences in accounting policies

Answer

It can only be used for companies of similar size

Answer

It is not a subjective process

Answer

It can be used to predict future cash flows

Question 18

What does a high current ratio typically indicate about a company's financial position?

Accepted Answer

The company has a high level of liquidity

Answer

The company has a low level of liquidity

Answer

The company is at risk of bankruptcy

Answer

The company has excess inventory

Question 19

Which of the following ratios measures a company's efficiency in utilizing its assets?

Accepted Answer

Asset turnover ratio

Answer

Return on assets

Answer

Debt-to-equity ratio

Answer

Net profit margin

Question 20

What is the formula for calculating a company's return on equity (ROE)?

Accepted Answer

Net income / Average shareholder equity

Answer

Gross income / Average shareholder equity

Answer

Operating income / Average shareholder equity

Answer

EBIT / Average shareholder equity