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