Measuring Profitability. Efficiency

Question 1

What is the formula for calculating Return on Investment (ROI)?

Answer 1

ROI = (Net Profit / Cost of Investment) * 100

Question 2

True or False: A higher Return on Equity (ROE) indicates better profitability.

Answer 2

True

Question 3

Fill in the blank: Gross Profit Margin is calculated as ________ / Revenue.

Answer 3

Gross Profit

Question 4

What does the Current Ratio measure?

Answer 4

The ability of a company to pay its short-term obligations

Question 5

Which financial ratio measures a company’s ability to cover its interest payments with its earnings?

Answer 5

Interest Coverage Ratio

Question 6

What is the formula for calculating Operating Profit Margin?

Answer 6

Operating Profit Margin = Operating Profit / Revenue

Question 7

What does the Inventory Turnover Ratio measure?

Answer 7

How quickly a company sells its inventory

Question 8

True or False: A lower Debt-to-Equity ratio is generally considered more favorable.

Answer 8

True

Question 9

Fill in the blank: The _______ the Return on Assets (ROA), the more efficient the company is at using its assets to generate profit.

Answer 9

higher

Question 10

What is the formula for calculating Earnings Before Interest and Taxes (EBIT)?

Answer 10

EBIT = Revenue - Operating Expenses

Question 11

Which financial ratio measures a company’s ability to generate profit from its equity?

Answer 11

Return on Equity (ROE)

Question 12

What does the Quick Ratio measure?

Answer 12

The company’s ability to cover its short-term obligations with its most liquid assets

Question 13

What is the formula for calculating Net Profit Margin?

Answer 13

Net Profit Margin = Net Profit / Revenue

Question 14

True or False: A higher Inventory Turnover Ratio indicates slower inventory turnover.

Answer 14

False

Question 15

Fill in the blank: The _______ the Debt-to-Asset ratio, the higher the financial leverage of the company.

Answer 15

higher

Question 16

What does the Return on Assets (ROA) measure?

Answer 16

The efficiency of a company in generating profit from its assets

Question 17

Which financial ratio measures a company’s ability to pay off its debt obligations with its operating income?

Answer 17

Debt Service Coverage Ratio

Question 18

What is the formula for calculating Gross Profit Margin?

Answer 18

Gross Profit Margin = (Gross Profit / Revenue) * 100

Question 19

True or False: A lower Operating Profit Margin indicates better operational efficiency.

Answer 19

False

Question 20

Fill in the blank: The _______ the Quick Ratio, the better the company’s liquidity position.

Answer 20

higher

Question 21

What does the Debt-to-Equity ratio indicate about a company’s financial structure?

Answer 21

The proportion of debt and equity used to finance the company’s assets

Question 22

Which financial ratio measures a company’s ability to cover its current liabilities with its current assets?

Answer 22

Current Ratio

Question 23

What is the formula for calculating Debt-to-Asset ratio?

Answer 23

Debt-to-Asset ratio = Total Debt / Total Assets

Question 24

What does the Interest Coverage Ratio indicate about a company’s financial health?

Answer 24

The ability to meet interest payments with operating income