Quiz Module 5 ?s

Question 1

Which answer does not give a correct definition of the basic type of financial ratio described?

Debt ratios measure the firm’s ability to pay long-term debt.

Liquidity ratios measure the availability of cash to pay debt.

Activity ratios are concerned with shareholder audiences.

Profitability ratios measure the firm’s use of its assets to generate an acceptable rate of return.

Answer 1

Activity ratios are concerned with shareholder audiences.

Question 2

Which answer is not a type of ratio used in financial statement analysis?

Business ratio

Liquidity ratio

Profitability ratio

Activity ratio

Answer 2

Business ratio

Question 3

Which description is not a drawback of using return on assets in a financial analysis?

It does not measure how effective the company is at using its assets to generate profit.

There is no definitive metric that identifies an ROA as good or bad.

ROA does not identify how assets were financed.

ROA is calculated using the assets’ carrying value, not its market value.

Answer 3

It does not measure how effective the company is at using its assets to generate profit.

Question 4

Which description is not a benefit associated with using the DuPont Equation?

The DuPont equation is very useful in analyzing any business regardless of industry.

Analysts can determine which factor is dominant in determining a company’s return on equity.

The DuPont equation can show whether a high level of leverage is risky or necessary for a company.

Analysts can use the DuPont equation to understand the fluctuations of a company’s Return on Equity.

Answer 4

The DuPont equation is very useful in analyzing any business regardless of industry.

Question 5

Which example is not a correct definition of a basic type of financial ratios?

Profitability Ratios

Liquidity Ratios

Activity

Debt Ratios

Answer 5

Activity