Accounting Midterm

The gross profit margin gives investors the best indication of how effectively a business is earning a profit from its normal business operations.

• true
• false

Quick assets include which of the following?

• cash
• merchandise
• buildings
• trademarks

The gross profit ratio is also referred to as the gross margin.

• true
• false

The price-earnings ratio is an example of a

• solvency ratio
• profitability ratio
• liquidity ratio
• market ratio

To rate the ability of a business to pay its current and long-term liabilities, investors use

• solvency ratio

• profitability ratio

• liquidity ratio

• market ratio

Gross margin can be increased by

• selling more merchandise.
• buying less merchandise.
• increasing unit sales prices.
• reducing operating expenses.

The ratio that gives the best indication of how effectively a business is earning a profit from its normal business operations is the

• debt ratio
• quick ratio
• gross margin
• operating margin

Financial statements in which all amounts are presented as percentages of one key figure. For the income statement, all items are shown as a percent of sales. For the balance sheet, all items are shown as a percent of total assets.

• horizontal analysis
• common-size financials
• working capital
• liquidity

The degree to which the company is leveraged; that is, financed by debt rather than equity is called

• loan value
• yield
• liquidity
• solvency

The times interest earned ratio indicates the number of times a company can meet its ______ obligations on its borrowings with its EBIT (earnings before interest and taxes).

• payment period
• interest
• loan
• minimum investment