Financial Statements Analysis Quiz

What does the percentage gross profit on sales indicate?

• The total cost of goods sold

• The percentage of sales available to cover operating expenses

• The total liabilities of the company

• The total sales revenue

What is the formula for calculating the current ratio?

• Total assets / Total liabilities

• Total liabilities / Total assets

• Current liabilities / Current assets

• Current assets / Current liabilities

What does a low acid-test ratio indicate?

• The business has high cash reserves

• The business can pay its short-term debts without selling stock

• The business cannot pay its short-term debts without selling stock

• The business has high inventory levels

What is the ideal current ratio for a business?

• 4:1

• 3:1

• 2:1

• 1:1

What does the debt/equity ratio indicate?

• The total liabilities of the business

• The ratio of borrowed capital to shareholders' equity

• The profitability of the business

• The total assets of the business

What is the recommended return on total capital employed (ROTCE) compared to interest on loans?

• It should be higher than the interest rate

• It should be equal to the interest rate

• It should be lower than the interest rate

• It should not be compared

What does a high stock turnover rate indicate?

• Poor sales policy

• Slow sales

• High sales and quick cash availability

• Excess inventory

What is the formula for calculating the average debtors collection period?

• Average Debtors x 365 / Credit Sales

• Credit Sales / Average Debtors

• Credit Sales x 365 / Average Debtors

• Average Debtors / Credit Sales

What does the return on shareholders' equity (ROSHE) measure?

• The total profit of the company

• The profit made on the money invested by shareholders

• The total assets of the company

• The total liabilities of the company

What is the purpose of calculating the rate of stock turnover?

• To determine the number of times stock is replaced per year

• To assess the company's liabilities

• To calculate total sales

• To measure the company's profitability