Week 2 Homework - Ratio Analysis

What is one of the purposes of ratio analysis in financial statements?

• To increase company profits

• To assess the performance of a company

• To hire new employees

• To reduce production costs

Why is it important to compare ratios with benchmarks?

• To ensure ratios are higher than competitors

• To meet pre-determined targets and industry norms

• To increase company profits

• To reduce operational costs

Which of the following is NOT a basis for comparing ratios?

• Ratios of companies of similar size

• Average ratios for the business sector

• Ratios for the company from previous years

• Ratios based on employee satisfaction

Why might a company adjust its previous years' ratios?

• To account for inflation

• To increase market share

• To improve employee morale

• To reduce taxes

What do profitability ratios measure in a company?

• The efficiency of managing short-term assets

• The ability to meet financial obligations

• The success in generating profit

• The financial risk from increasing debt

Which ratio category is closely linked to liquidity ratios?

• Profitability ratios

• Activity ratios

• Gearing ratios

• Investor ratios

What do liquidity ratios assess in a company?

• The ability to meet financial obligations

• The efficiency of asset management

• The valuation in a takeover

• The financial risk from debt

What do gearing ratios or leverage ratios evaluate?

• The success in generating profit

• The efficiency of managing assets

• The financial risk from debt and equity

• The valuation in a takeover

What is the formula for Return on Capital Employed (ROCE)?

• Profit before interest and tax / Revenue × 100

• Profit before interest and tax / Capital employed × 100

• Revenue / Total assets × 100

• Operating profit / Total liabilities × 100

What does the term "capital employed" refer to?

• Total assets plus current liabilities

• Total assets less current liabilities

• Equity minus non-current liabilities

• Revenue plus non-current liabilities