Chapter 41

Question 1

What is interim income statement

Answer 1

An interim income statement helps to compare the actual with the budgeted amount for that period.

Question 2

What are financial ratios

Answer 2

These ratios serve as a measure of the financial strengths and weaknesses of the venture, but should be used with caution.

Question 3

What are current ratios

Answer 3

Current ratio is commonly used to measure ability of venture to meet its short-term debts.

Question 4

What is the formula of current ratio

Answer 4

current ratio = current assets / current liabilities

Question 5

What is acid test ratio

Answer 5

Acid test ratio is a more rigorous test of the short-term liquidity of the venture.

Question 6

What is inventory turn over

Answer 6

Inventory turnover measures the efficiency of the ven­ture in managing and selling its inventory. A high turnover is a favorable sign indicating the venture is able to sell its inventory quickly.

Question 7

What is Leverage Ratios

Answer 7

Debt ratio helps the entrepreneur assess the firm’s ability to meet all its obligations. It is also a measure of risk because debt also con­sists of a fixed commitment.

Question 8

What is Debt to equity ratio

Answer 8

Debt to equity ratio assesses the firm’s capital structure. It provides a measure of risk by considering the funds invested by creditors and investors. The higher the percentage of debt, the greater the degree of risk to any of the creditors.

Question 9

What is Profitability Ratios

Answer 9

Net profit margin represents the venture’s ability to translate sales into profits.

Question 10

What is Return on investment

Answer 10

Return on investment measures the ability of the ven­ture to manage its total investment in assets. By substituting stockholders’ equity for assets, you can also calculate a return on equity.