Financial Ratios

NOTE: For multiple-choice and true/false questions, simply place your cursor over what you think is the correct answer. (There is no need to click the answer.) For fill-in-the-blank questions place your cursor over the _________.

If you have difficulty answering the following questions, learn more about this topic by reading our Financial Ratios Explanation.

1.	Which of the following is not a current asset?
Inventory              Prepaid Insurance              Fixtures

2.	Current asset MINUS current liabilities is the
current ratio              net worth              working capital

3.	Current assets DIVIDED BY current liabilities is the
current ratio              the net worth ratio              working capital

4.	The quick ratio EXCLUDES which of the following?
Accounts Receivable              Inventory              Cash

Use the following information to answer items 5 - 7: At December 31 a company's records show the following information: Cash $ 10,000 Accounts Receivable 30,000 Inventory 80,000 Prepaid Insurance 6,000 Long-term Assets 200,000 Accounts Payable 30,000 Note Payable due in 10 months 25,000 Wages Payable 5,000 Long-term Liabilities 70,000 Stockholders' (Owner's) Equity 196,000

5.	The company's working capital is
$60,000              $66,000              $196,000

6.	The company's current ratio is
1.0 : 1              2.0 : 1              2.1 : 1

7.	The company's quick ratio is
0.7 : 1              1.0 : 1              2.0 : 1

Use the following information to answer items 8 - 11: For the year 2006 a company had Sales (all on credit) of $830,000 and Cost of Goods Sold of $525,000. At the beginning of 2006 its Accounts Receivable were $80,000 and its Inventory was $100,000. At the end of 2006 its Accounts Receivable were $86,000 and its Inventory was $110,000.

8.	The inventory turnover ratio for the year 2006 was
4.8              5.0              7.9

9.	The accounts receivable turnover ratio for the year 2006 was
6.3              7.5              10.0

10.	On average how many days of sales were in Accounts Receivable during 2006?
27              37              49

11.	On average how many days of sales were in Inventory during 2006?
14              46              73

Use the following information for items 12 and 13: A company's net income after tax was $400,000 for the year 2006. The company's income statement included Income Tax Expense of $140,000 and Interest Expense of $60,000. At the beginning of the year 2006 the company's stockholders' equity was $1,900,000 and at the end of 2006 it was $2,100,000.

12.	What is the times interest earned for the company?
6.7              9.0              10.0

13.	What is the after-tax return on stockholder's equity for the year 2006?
20%              25%              30%

14.	The debt to equity ratio is computed as:  (Total Liabilities ÷ Total ______________  _______) : 1

15.	Which of the following are likely to have the reported amounts on the balance being close to their current value?
Current Assets              Long-term Assets              Stockholders' Equity

16.	A corporation's excellent reputation will be listed among the corporation's assets on its balance sheet.	True	False
17.	The current market value of a corporation is approximately the amount reported on the balance sheet as stockholders' equity.	True	False
18.	Free cash flow is the cash provided by operating activities minus the cash used by financing activities.	True	False

19.	The quality of a company's earnings are suspect when the company's net income is less than the cash flow from which activities?
Operating              Investing              Financing

20.	A balance sheet which reports percentages of total assets instead of dollar amounts is referred to as a ___________ – ________ balance sheet