Ratios

Question 1

What is liquidity?

Answer 1

Liquidity is the ability of a business to dissolve its assets into cash within a 12 month or less period.

CA/CL

Question 2

What is Solvency?

Answer 2

Solvency is the total ability for a business to pay off it’s debts.

Also known as gearing or debt to equity ratio.

= all liabilities/owner’s equity

Question 3

What is a gross profit ratio?

Answer 3

GP/Sales

Question 4

What is a net profit ratio?

Answer 4

NP/Sales

Question 5

What is return on owner’s equity?

Answer 5

net profit/owner’s equity

Question 6

What is your quick ratio?

Answer 6

CA - inventory/Cl - bank overdraft

Question 7

What is gearing?

Answer 7

Gearing indicates how much a business relies on its loans and equity and the long term stability of the business.

all liabilities/owners equity

Question 8

What is a good level of gearing?

Answer 8

100%

Question 9

What is a good liquidity ratio?

Answer 9

2:1

Question 10

what should liquidity be expressed as?

Answer 10

ratio

Question 11

What is a good level of gearing?

Answer 11

100%

Question 12

What should gearing be expressed as?

Answer 12

percentage