Financial ratio quiz

Prepared by Pamela Peterson Drake

(1) A high inventory turnover may indicate
a) an efficient use of the investment in inventory.
b) a high risk of stock-outs.
c) a low profit margin.
d) Both selections (a) and (b) are correct.


(2) Inventory is removed from liquid assets in the calculation of the quick ratio because
a) inventory is meaningless.
b) it is usually the least liquid of the current assets.
c) because it is a large part of current assets.
d) because it cannot be sold for cash.


(3) Total asset turnover is
a) the ratio of credit sales to total assets.
b) the ratio of sales to total assets.
c) the ratio of the cost of goods sold to total assets.
d) high.


(4) The net profit margin
a) is less than or equal to the operating profit margin.
b) is less than or equal to the gross profit margin.
c) is greater than the operating profit margin.
d) Both selections (a) and (b) are correct sentence competions.


(5) The DuPont system invoves analyzing return ratios by breaking them down into
a) profit margin and turnover components.
b) turnover and liquidity components.
c) leverage components.
d) their individual parts.


(6) The debt-to-equity ratio is a measure of a firm's
a) financial leverage
b) operating leverage
c) liquidity
d) profitability


(7) The CBA Company has a net profit margin of 5% and a total asset turnover of 5 times. What is CBA's return on assets?
a) 1%
b) 5%
c) 10%
d) 25%


(8) A company with a debt-to-equity ratio of 2.5 and $10 million of assets has debt of
a) $2.9 million
b) $5 million
c) $7.14 million
d) $8.23 million


(9) The interest coverage ratio is the ratio of
a) operating income to the interest expense.
b) net income to the interest expense.
c) gross profit to operating profit.
d) net income to interest income.


(10) A current ratio of 2.0
a) tells us that current assets are twice current liabilities.
b) is good.
c) indicates a problem with liquidity.
d) is greater than the quick ratio for a firm.