Financial Ratio Quiz
Questions: 16 · 10 minutes
1. A company begins with $200,000 in current assets and $100,000 in current liabilities. Which action would immediately increase its current ratio, assuming no other effects?
Collect $40,000 of accounts receivable in cash
Buy $40,000 of inventory with cash
Pay $40,000 of accounts payable with cash
Borrow $40,000 in cash through a short-term loan
2. A business has earnings before interest and taxes of $120,000 and interest expense of $30,000. What is its interest coverage ratio?
0.25 times
4 times
3 times
5 times
3. A business reports $500,000 in net sales and $300,000 in cost of goods sold. What is its gross profit margin?
25%
60%
66.7%
40%
4. Net income is $45,000 and net sales are $600,000. What is the net profit margin?
13.3%
4.5%
9.0%
7.5%
5. Which formula calculates the current ratio?
Cash and cash equivalents divided by total liabilities
Current liabilities divided by current assets
Current assets divided by current liabilities
Current assets minus current liabilities
6. Which approach makes financial ratio analysis most useful?
Treating one year's ratios as sufficient to establish the company's market value
Using consistent definitions and comparing ratios with prior periods and relevant peers
Assuming that a higher ratio is always more favorable
Applying the same ideal ratio to every industry and business model
7. If current assets exactly equal current liabilities, what is the current ratio?
0.0
0.5
1.0
2.0
8. Cost of goods sold is $480,000 and average inventory is $80,000. What is inventory turnover?
4 times
5 times
8 times
6 times
9. Which asset is normally excluded from the quick ratio but included in the current ratio?
Cash
Short-term marketable securities
Accounts receivable
Inventory
10. A company earns $30,000 in net income and has average shareholders' equity of $150,000. What is its return on equity?
20%
12.5%
50%
5%
11. A company's gross profit margin is unchanged from last year, but its net profit margin has fallen. Which explanation is most consistent with those facts?
Cost of goods sold necessarily decreased as a percentage of sales
Accounts receivable were collected more quickly
Operating or other costs below gross profit rose relative to sales
Inventory turnover must have increased
12. Which formula best represents return on assets when average balance-sheet amounts are available?
Net sales divided by average total assets
Net income divided by average total assets
Net income divided by average shareholders' equity
Operating income divided by average current assets
13. Net sales are $900,000 and average total assets are $600,000. What is the total asset turnover ratio?
1.5 times
0.67 times
2.5 times
3.0 times
14. For this question, debt-to-equity is defined as total liabilities divided by total shareholders' equity. What is the ratio if liabilities are $360,000 and equity is $240,000?
1.5
0.67
2.5
0.4
15. A company has $240,000 in current assets and $120,000 in current liabilities. What is its current ratio?
0.5
2.0
1.0
3.0
16. Using a 365-day year, a company has annual credit sales of $730,000 and average accounts receivable of $100,000. What is its approximate days sales outstanding?
50 days
73 days
100 days
25 days