Tutorial - Financial Ratios Analysis

The formula for Statement of Financial Position or Balance Sheet is ______________.

Assets = Equity + Liabilities

Assets = Equity + Current Liabilities

Current Assets = Equity + Liabilities

Non-Current Assets = Equity + Liabilities

If the companys current ratio declining which its quick ratio improved, which of the following is the most likely explanation?

Inventory is increasing

Inventory is declining

Receivables are being collected more rapidly than in the past

Receivables are being collected more slowly than in the past

The ratio that explains how efficiently companies use their assets to generate revenue.

Revenue Asset Ratio

Receivable Turnover Ratio

Income Ratio

Asset Turnover Ratio

What does the accounts receivable (A/R) turnover ratio tell us?

how often A/R is received

how many times average A/R is collected

A/R balance is at the end of a period

bad debt balances at year end

Which two of the following would be preferable to the bondholders of a company?

i. A debt ratio of 50% rather than 20% ii. A debt ratio of 20% rather than 50% iii. A times-interest-earned of 2.0 rather than 5.0 iv. A times-interest-earned 5.0 rather than 2.0

i and iii

i and iv

ii and iii

ii and iv

All else being equal, which of the following will increase a companys current ratio?

An increase in accounts receivable

An increase in accounts payable

An increase in net fixed assets

A decrease in long-term debt

X Co. Has made plans for the next year. It is estimated that the company will employ total assets of RM800,000; 50 percent of the assets being financed by borrowed capital at an interest cost of 8 percent per year. The direct costs for the year are estimated at RM480,000 and all other operating expenses are estimated at RM80,000. The goods will be sold to customers at 150 percent of the direct costs. Tax rate is assumed to be 50 percent.

You are required to calculate:

Net Profit Margin

Return on Assets

Asset Turnover

Return on Owners Equity

Shine Limited has a current ratio 4.5 : 1 and quick ratio 3 : 1; if the inventory is RM36,000, calculate Current Liabilities and Current Assets.

Why would the inventory turnover ratio be more important when analysing a grocery store than an insurance company?