HSC Financial Ratios

Question 1

Current ratio is an analysis of which aspect of the financial statement?

Answer 1

Liquidity

Question 2

Debt equity ratio is an analysis of which aspect of the financial statement?

Answer 2

Gearing/solvency

Question 3

Gross profit ratio is an analysis of that aspect of the financial statement?

Answer 3

Profitability

Question 4

Net ratio is an analysis of which aspect of the financial statement

Answer 4

Profitability

Question 5

Return on equity ratio is an analysis of which aspect of the financial statement?

Answer 5

Profitability

Question 6

Expense ratio is an analysis of that aspect of the financial statement?

Answer 6

Efficiency

Question 7

Accounts Receivable turnover ratio is an analysis of which aspect of the financial statement?

Answer 7

Efficiency

Question 8

What is the current ratio formula?

Answer 8

Current assets/current liabilities

Question 9

What is the debt-to-equity ratio?

Answer 9

Total liabilities/owners’ equity

Question 10

What is the gross profit ratio?

Answer 10

Gross profit/sales

Question 11

What is the net profit ratio?

Answer 11

Net profit/sales

Note net profit is gross profit less expenses

Question 12

What is the return on equity ratio?

Answer 12

Net profit/total equity

Question 13

What is the expense ratio?

Answer 13

Total expenses/sales

Question 14

What is the Accounts Receivable turnover ratio?

Answer 14

Sales/Accounts Receivable

Question 15

What does analysis of the current ratio show about a business?

Answer 15

Short term financial stability of the business.

Is generally accepted that a ratio of 2:1 indicates a sound financial position

Question 16

What does analysis of the debt-to-equity ratio show about a business?

Answer 16

Shows the extent to which the firm is relying on deck outside sources to finance the business
The higher the ratio, the less solvent the firm

Question 17

What does analysis of the gross profit ratio show about a business?

Answer 17

Shows that changes from one accounting period to another and indicates effectiveness of planning policies concerning pricing, sales, discounts, evaluation of stuff etc
The higher the ratio the better

Question 18

What does the analysis of the net profit ratio show about a business?

Answer 18

Net profit ratio represents a profit or return to the owners. Family aiming for a high net profit ratio. A low net profit ratio indicates expenses should be examined to look for possible reductions

Question 19

What does analysis of the return on equity ratio show about a business

Answer 19

Shows how effective the funds contributed by the owners have been generating profit and so the return on investment. The higher the ratio or percentage, the better the return to the owner.

Question 20

What does an analysis of the expense ratio show about a business?

Answer 20

Each of the categories of expenses compared with sales. The ratio indicates amount of sales that are allocated to individual expenses such as selling, administration calls and financial expenses. Expense ratios need to be kept at a reasonable level. Higher expense ratios may be the result of poor management.

Question 21

What does an analysis of the accounts receivable ratio show about a business?

Answer 21

Measures the effectiveness of a firm’s credit policy and how efficiently it collect its debt. High turnover rates indicate the business has efficient debt collection.