FA - Chapter 2

Question 1

Basic earnings per share ratio

Liquidity ratio or solvency ratio?

Answer 1

net income - preferred dividends/weighted average # of common shares

Question 2

Price earnings ratio

Liquidity ratio of solvency ratio?

Answer 2

market price per share/earnings per share

allows you to compare earnings from one company to another

Question 3

Working capital ratio

Liquidity ratio or solvency ratio?

Answer 3

current assets - current liabilities

Question 4

Current ratio

Liquidity ratio or solvency ratio?

Answer 4

current assets/current liabilities

Question 5

Debt to total assets

Liquidity ratio or solvency ratio?

Answer 5

total liabilities/total assets
solvency
the ability of a company to pay off one’s debts

Question 6

What are the 10 fundamental qualitative characteristics of financial accounting?

Answer 6

Comparability, cost constraint, current value, historical cost, faithful representation, going concern, relevance, timeliness, understandability, verifiability.