Ratios

Question 1

Inventory Turnover

Answer 1

COGS/Avg Inventory

Question 2

FIFO

Answer 2

Inventory-costing methods will produce a lower inventory turnover ratio in an inflationary economy.

Question 3

LIFO

Answer 3

Highest COGS and lowest ending inventory, resulting in a lower inventory turnover.

Question 4

Profitability ratios

Answer 4

1. Gross Margin Ratio
2. Return on assets

Question 5

Times interest earned ratio

Answer 5

=EBIT/Int Expense

Question 6

Asset utilization

Answer 6

1. Inventory turnover
2. Receivable turnover

Question 7

Liquidity Ratio

Answer 7

1. Current ratio
2. Quick Ratio (acid-test)

Question 8

Debt utilization

Answer 8

1. Debt to total assets ratio
2. Debt to equity ratio

Question 9

Market

Answer 9

1. Price to earnings ratio
2. Sales to cash flow ratio

Question 10

Dividend payout ratio

Answer 10

Cash Dividends/Net Income

Question 11

Return on Sales

Answer 11

Net Operating Profit/Sales

Question 12

Book value per share

Answer 12

Total shareholders’ Equity/No. of Shares outstanding

Question 14

(Net Income - Preferred Dividends) /Weighted avg no. of common shares (RE+Common Stock)

Answer 14

True

Question 14

Gross Profit = 0.3, COGS = 0.7 of Sales

Answer 14

True

Question 14

Price or market price per share/EPS = P/E ratio

Answer 14

True (This considers only dividends paid on preferred stock and not dividends paid on common stock)

Question 14

365/AR turnover and AR turnover = Credit sales/Avg AR

Answer 14

True e.g. 365/12

Question 15

Asset Turnover*Profit Margin

Answer 15

Return on Assets

Question 16

Net Income/Avg Assets

Answer 16

Return on Assets

Question 17

AR turnover is calculated considering Credit Sales and not Cash sales

Answer 17

True

Question 18

Which ratio measures short term solvency?

Answer 18

Current Ratio

Question 19

Operating Profit Margin

Answer 19

Sales - COGS - general and admin expenses/Sales

Question 20

Avg days Operating Cycle

Answer 20

=Avg days Sales in AR + Avg days sales in inventories

Question 21

Return on stockholders equity

Answer 21

=NI-Preferred Dividends / Avg(Common stock+ RE)

Question 22

FIFO - same result for perpetual and periodic inventory

Answer 22

True

Question 23

Quick Ratio

Answer 23

(Cash+Marketable securities+AR-Allowance for credit losses)/CL

Question 24

Quick Ratio

Answer 24

(CA-Inventory-Prepaids)/CL

Question 25

Price Earnings Ratio is a market ratio

Answer 25

Not a profitability ratio , Market price per share/EPS

Question 26

Because the A/R equals the net carrying value (A/R less the allowance for credit losses). Because the A/R are reported on the BS, the credit risk is not considered off-balance sheet risk.

Answer 26

Off-balance sheet credit losses are recorded as a liability.

Question 27

TOTAL DEBT RATIO

Answer 27

TOTAL LIABILITIES/TOTAL ASSETS

Question 28

DEBT TO EQUITY

Answer 28

TOTAL LIABILITIES/EQUITY