Test Your Knowledge - Financial Ratios & Decision Making

What does the current ratio measure?

A company's ability to pay its short-term liabilities with short-term assets
A company's profitability
A company's long-term solvency

Which of the following financial ratios measures a company's profitability?

Return on Assets (ROA)
Quick Ratio
Debt to Equity Ratio

What does the Debt-to-Equity ratio indicate?

The proportion of equity and debt used to finance the company’s assets
The company’s ability to pay off short-term debt
The company's profitability ratio

Which ratio would most likely be used to assess a company's efficiency in using its assets?

Return on Equity (ROE)
Return on Assets (ROA)
Gross Profit Margin

What is the formula for calculating the Quick Ratio?

(Current Assets - Inventory) / Current Liabilities
Current Assets / Current Liabilities
(Current Assets - Current Liabilities) / Total Assets

Which financial ratio is used to evaluate a company's leverage?

Return on Investment (ROI)
Debt-to-Equity Ratio
Gross Profit Margin

What is the significance of the Gross Profit Margin ratio?

It measures how much of every dollar of sales is profit
It indicates the company’s ability to pay its liabilities
It shows how efficiently the company uses its assets

Which financial ratio is most commonly used for analyzing a company’s liquidity?

Current Ratio
Return on Assets (ROA)
Price-to-Earnings (P/E) Ratio

What does the Price-to-Earnings (P/E) ratio represent?

The company’s earnings per share compared to its stock price
The company’s total revenue divided by its liabilities
The ratio of the company’s profits to its equity capital

How can the Return on Equity (ROE) ratio assist in decision-making?

It shows how much profit the company generates with shareholders' equity
It measures the company’s short-term solvency
It shows how efficiently the company manages its inventory

Test Your Knowledge - You have 10 questions!