Financial Analysis Flashcard

Front

What is the Net Profit Ratio?

Back

The Net Profit Ratio is a financial metric that assesses a company's profitability after all expenses have been deducted from total revenue. It is calculated as Net Profit divided by Total Revenue.

Front

What does a high Interest Coverage Ratio indicate?

Back

A high Interest Coverage Ratio suggests that a company has a strong ability to pay its interest obligations, indicating lower financial risk.

Front

What does a high Inventory Turnover Ratio signify?

Back

A high Inventory Turnover Ratio signifies efficient inventory management, meaning the company is selling and replacing its inventory quickly.

Front

What is the formula for the Creditors Turnover Ratio?

Back

The formula for the Creditors Turnover Ratio is Credit Purchases divided by Average Accounts Payable.

Front

What do Solvency Ratios measure?

Back

Solvency Ratios measure a company's ability to meet its long-term obligations, indicating financial stability.

Front

Define Gross Profit Ratio.

Back

The Gross Profit Ratio is a financial metric that shows the percentage of revenue that exceeds the cost of goods sold (COGS). It is calculated as Gross Profit divided by Total Revenue.

Front

What is the significance of Current Ratio?

Back

The Current Ratio measures a company's ability to pay short-term obligations with its current assets. A ratio above 1 indicates that the company has more current assets than current liabilities.

Front

Explain the concept of Activity Ratios.

Back

Activity Ratios measure how efficiently a company utilizes its assets to generate revenue. Common examples include Inventory Turnover and Receivables Turnover Ratios.

Front

What does a low Quick Ratio indicate?

Back

A low Quick Ratio indicates that a company may struggle to meet its short-term liabilities without selling inventory, suggesting potential liquidity issues.

Front

What is the formula for calculating Return on Equity (ROE)?

Back

Return on Equity (ROE) is calculated as Net Income divided by Shareholder's Equity, indicating how effectively management is using a company’s assets to create profits.