Finances

Question 1

What is the Current Risk Ratio?

Answer 1

Examines the Company’s ability to cover immediate short-term obligations with assets that are easy or may have a delay in converting to cash. Over one is good, under is bad.

(Current Ratio = Current Assets/Current Liabilities)

Question 2

What is the Quick Risk Ratio?

Answer 2

Examines the Company’s ability to cover short-term obligations using assets that can quickly be converted to cash. Over one is good, under is bad.

(Quick Ratio = (Cash + Securities + Accounts Receivable)/Current Liabilities)

Question 3

What is the Debt to Equity Ratio?

Answer 3

A long term perspective on the companies health.

D to E Ratio = Total Liabilities/Shareholder Equity

Question 4

How are financial decisions made?

Answer 4

Financial decisions are made based on past performance and projected future performance.

Question 5

What are the two earnings ratios?

Answer 5

Earnings per Share (EPS) = Net Income/Total Shares

Price to earnings (P/E) = Price per Share/EPS

Question 6

What are the two ways of calculating return on investment?

Answer 6

ROI = (Investment Value at end of period/Investment Value at beginning of period) - 1

or

ROI = (Initial Investment plus interest earned (or lost)/Initial Investment)-1