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# Financial Ratios

### Questions about some of the basic financial ratios

Name one liquidity ratio. Current ratio
What is generally accepted as a healthy current ratio? 2:1
How do you calculate the current ratio? Current Assets/Current Liabilities
How do you calculate the rate of return? Net Profit/Owner's Equity
Would taking out a long term loan improve your liquidity? Yes
What is another name for the Current Ratio? Working Capital Ratio
Does a highly geared business have more equity than debt? No
What ratio can be used to measure solvency Debt to Equity
What is the formula of the Debt to Equity ratio? Debt/Equity
Name the two efficiency ratios. The Accounts Receivable Turnover Rato The Expense Ratio
What unit of measure does the ART Ratio use? Days
To calculate the ART Ratio, Accounts Receivable must be divided by what? Average Credit Sales
If your terms of credit are 30 days and your ART Ratio is 49 days, name two possible solutions. Factoring Discounts for early payments
What does COGS stand for? Cost of Goods Sold
How do you calculate COGS Opening Stock plus Purchases Minus Closing Stock
A high gross profit coupled with a low net profit would indicate a problem in which area? Operating Expenses
How do you calculate working capital? Current Assets - Current Liabilities
Name 3 current assets. Cash, Inventory, Accounts Receivable, Prepayments
Name 2 current liabilities Overdraft, Accounts Payable
What do the Expense Ratio, the Gross Profit Ratio and the Net Profit Ratio all have in common? They are all calculated by dividing their name by sales.
How do you calculate Net Profit? Gross Profit - Expenses
If the Expense Ratio is 40% and Sales are \$100,000 - what is the value of expenses. \$40,000
If the Expense Ratio is written as 0.4, what does this mean? For every one dollar of sales, 40c is lost to expenses
Created by: sshea on 2011-03-26