Course 4 Week 3 test

Question 1

Gross Profit Margin shows the percentage of revenue that:

Answer 1

Exceeds the cost of goods sold (COGS)

Question 2

Lou’s Tavern recorded $60,000 in sales revenue and a cost of goods sold of $45,000 on their income statement this month. What is their Gross Profit Margin? (enter your answer as a decimal and round to the nearest hundredth, example x.xx)

Answer 2

Correct! Using the formula (Sales Rev - COGS) / Sales Rev, Lou’s Tavern would have a 25% Gross Profit Margin.

Question 3

Net profit margin shows the percentage of:

Answer 3

Profit a company produces from its total revenue

Question 4

On Marla’s Laundromat Income Statement there is a Sales Revenue of $60,000 and Operating Earnings of $11,000. What is their Operating Profit Margin? (enter your answer as a decimal and round to the nearest hundredth, example x.xx)

Answer 4

Correct! Using the formula $11,000 (Operating Earnings) / $60,000 (Sales Revenue), Marla’s Laundromat would have an Operating Profit Margin of 18%.

Question 5

Tyler’s Theater recorded a net profit of $8,500 in addition to their Sales Revenue of $60,000 on their recent income statement. What is their Net Profit Margin? (enter your answer as a decimal and round to the nearest hundredth, example x.xx)

Answer 5

Correct! Using the formula $8,500 (Net Income) / $60,000 (Sales Revenue), Tyler’s Theater would have a Net Profit Margin of 14%.

Question 6

How to calculate current debt ratio

Answer 6

Correct! Dividing the current assets by current liabilities ) gives you the ratio

Question 7

If a company has $30,000 debt and $60,000 equity, what is its debt to equity ratio? (enter your answer as a decimal and round to the nearest tenth, example x.x)

Answer 7

Correct! The debt to equity ratio would be 0.5.

$30,000 / $60,000 = 0.5

Question 8

When is a high debt to equity ratio be positive for a company’s financial health and share price?

Answer 8

If the earnings growth that the borrowed money generates is HIGHER than the cost of borrowing it

Question 9

True or False: Generally, a high AP turnover ratio indicates that you satisfy your accounts payable obligations quickly.

Answer 9

Correct! A higher AP turnover ratio indicates that you satisfy your accounts payable obligations quickly.

Question 10

The Cash Flow Coverage Ratio measures _________.

Answer 10

The Cash Flow Coverage Ratio measures _________.

Question 11

DigiWidgit recorded operating cash flows totaling $152,000 and the total debt payable for the year was $77,000 What is their Cash Flow Coverage Ratio? (enter your answer as a decimal and round to the nearest hundredth, example x.xx)

Answer 11

Correct
Correct! Their Cash Flow Coverage Ratio is 1.97.

$152,000 / $77,000 = 1.97

Question 12

Daryl’s Delivery recorded current liabilities of $44,000 at the year’s start, current liabilities of $67,000 at year’s end, and Cash Flow from Operating Activities of $120,000. What is their Current Liability Coverage Ratio? (enter your answer as a decimal and round to the nearest hundredth, example x.xx)

Answer 12

Correct! Their Current Liability Coverage Ratio is 2.16.

($67,000 + $44,000) / 2 = $55,500

$120,000 / $55,500 = 2.16

Question 13

Superior Suits recorded a cash flow from operations of $48,750 and net sales of $87,000. What is their Operating Cash Flow Margin ratio? (enter your answer as a decimal and round to the nearest hundredth, example x.xx)

Answer 13

Correct
Correct! Their Operating Cash Flow Margin Ratio is 0.56.

$48,750 / $87,000 = 0.56