Ratio Analysis Quiz
29 multiple-choice questions with answers and explanations · 4 easy, 21 medium, 4 hard
Liquidity, profitability, efficiency and solvency ratios, the DuPont equation, investor ratios, and horizontal and vertical analysis.
- 1Liquidity Ratios: What Do They Measure?Liquidity ratios such as the current ratio measure a company’s:easy
- 2Net Profit Margin: The CalculationA company has net profit of $45,000 on sales of $300,000. What is its net profit margin?easy
- 3Return on Assets (ROA): The CalculationNet income is $60,000 and average total assets are $500,000. What is the return on assets?easy
- 4Profitability, Liquidity or Solvency: Classifying the Debt-to-Equity RatioThe debt-to-equity ratio is classified as a:easy
- 5Current RatioA company has current assets of $120,000 and current liabilities of $80,000. Its current ratio is:medium
- 6Inventory Turnover RatioCost of goods sold for the year is $200,000 and average inventory is $25,000. The inventory turnover ratio is:medium
- 7Gross Profit MarginSales revenue is $500,000 and cost of goods sold is $320,000. The gross profit margin is:medium
- 8Acid-Test (Quick) RatioCurrent assets are $80,000, including inventory of $30,000 and prepaid expenses of $5,000. Current liabilities are $25,000. The acid-test ratio is:medium
- 9Receivables Turnover and Collection PeriodNet credit sales are $730,000 and average accounts receivable is $73,000. The average collection period (365-day year) is:medium
- 10Return on Equity (ROE): The CalculationNet income is $72,000 and average shareholders’ equity is $400,000. What is the return on equity?medium
- 11Asset Turnover Ratio: The CalculationSales are $900,000 and average total assets are $600,000. What is the asset turnover ratio?medium
- 12DuPont Equation: The Three Components of Return on EquityThe DuPont equation breaks return on equity into which three components?medium
- 13DuPont Equation: Calculating Return on EquityA company has a net profit margin of 8%, an asset turnover of 1.5 times and an equity multiplier of 2. Using the DuPont equation, what is its return on equity?medium
- 14DuPont Analysis: The Equity MultiplierTotal assets are $800,000 and total equity is $320,000. What is the equity multiplier?medium
- 15Times Interest Earned (Interest Cover): The CalculationProfit before interest and tax is $120,000 and interest expense is $30,000. What is the times interest earned ratio?medium
- 16Accounts Payable Payment Period: The CalculationCredit purchases for the year are $438,000 and average accounts payable are $36,000. Using a 365-day year, what is the average payment period?medium
- 17Price-Earnings (P/E) Ratio: The CalculationA share has a market price of $36 and earnings per share of $3. What is the price-earnings ratio?medium
- 18Dividend Payout Ratio: The CalculationA company pays dividends of $40,000 out of net income of $160,000. What is its dividend payout ratio?medium
- 19Dividend Yield: The CalculationA company pays an annual dividend of $1.20 per share and its share price is $30. What is the dividend yield?medium
- 20Return on Capital Employed (ROCE): The CalculationOperating profit is $75,000, total assets are $700,000 and current liabilities are $200,000. What is the return on capital employed?medium
- 21Gross Margin Steady but Operating Margin Falling: What Does It Mean?Over three years a company’s gross profit margin has stayed constant while its operating profit margin has fallen. The most likely cause is that:medium
- 22Interpreting the Current Ratio: Is Higher Always Better?A very high current ratio, such as 6 : 1, may indicate:medium
- 23Vertical (Common-Size) Analysis of an Income StatementIn vertical (common-size) analysis of an income statement, each item is expressed as a percentage of:medium
- 24Horizontal Analysis: Calculating the Percentage ChangeSales were $250,000 last year and $290,000 this year. What is the percentage increase?medium
- 25Limitations of Ratio AnalysisWhich of the following is a genuine limitation of ratio analysis?medium
- 26Debt-to-Equity RatioA company has total assets of $500,000, total liabilities of $300,000, and equity of $200,000. Its debt-to-equity ratio is:hard
- 27DuPont Analysis: Explaining a Rise in Return on EquityIn Year 1 a company had a net profit margin of 10%, asset turnover of 1.0 and an equity multiplier of 2.0. In Year 2 the figures were 8%, 1.0 and 3.0. Return on equity rose from 20% to 24% because of:hard
- 28Cash Conversion Cycle: The CalculationA company holds inventory for 50 days, collects from customers in 35 days and pays its suppliers in 40 days. What is its cash conversion cycle?hard
- 29Effect of Paying a Supplier on the Current RatioA company has current assets of $40,000 and current liabilities of $20,000, a current ratio of 2 : 1. It pays a supplier $10,000 in cash. The current ratio:hard