Financial Ratios

Question 1

Assets to liabilities ratio

Answer 1

Percentage of assets divided by debt

Question 2

Debt to equity ratio

Answer 2

Percentage of assets funded by shareholders’ equity and debt

Question 3

Inventory turnover rate

Answer 3

Assess if there is efficient use of assets

Question 4

Profitability ratios

Answer 4

Ability to generate excess income relative to sales

Question 5

Solvency ratio

Answer 5

Ability to meet long- term debts

Question 6

Liquidity ratio

Answer 6

Ability to meet short-term debts

Question 7

Activity ratio

Answer 7

Ability to transfer non-cash assets to cash assets

Question 8

Current ratio

Answer 8

Divide current assets by current liailities. Represnts an organizations ability to meet current financial obligation(sbll paying activity)

Question 8

Current ratio

Answer 8

Divide current assets by current liailities. Represnts an organizations ability to meet current financial obligations (bill paying activity)
Used by creditors to determine if an organization has sufficient assets to repay debts over the next 12 months.
Ratio of greater than 1 indicates ability to pay bills when due over next 12 months

Question 9

Uniform systems of accounts

Answer 9

Standard method of accounting within an industry. Include presentation of financial statements that provide comparability of financial data of different companies within an industry.

Question 10

Internal audit processes

Answer 10

Examine a company’s financial records to ensure their quality and legality