Ratios

Question 1

What do Liquidity Ratios measure?

Answer 1

measures of a firm’s short term ability to pay maturing obligations

Question 2

What do Activity Ratios measure?

Answer 2

measures how effectively an enterprise is using its assets

Question 3

What do Profitability Ratios measure?

Answer 3

the financial performance of an enterprise for a given period

Question 4

What do Investor Ratios measure?

Answer 4

measures that are of interest to investors

Question 5

What do long-term debt-paying ability ratios (or coverage ratios) measure?

Answer 5

measures of security for long-term creditors/investors

Question 6

Inventory turnover

Answer 6

Cost of Goods Sold / Average Inventory

measure how effectively an entity employs its resources

Question 7

Return on Assets

Answer 7

Net Income / Average Total Assets

Question 8

Accounts Receivable Turnover

Answer 8

Net Credit Sales / Average Net Receivables

Question 9

Average number of days sales in inventory is defined as?

Answer 9

365 days per year divided by the inventory turnover.

Question 10

Liquidity ratios and coverage ratios focus on?

Answer 10

Balance sheet account balances

Question 11

Income statement information is primarily used for?

Answer 11

Profitability analysis

Question 12

Current Ratio (working capital ratio)

Answer 12

Current Assets / Current Liabilities

Question 13

Working Capital?

Answer 13

Current Assets - Current Liabilities

Question 14

Acid-test Ratio

Answer 14

Cash equivalents + Marketable Securities + Accounts Receivable / Current Liabilites

Question 15

Accounts Receivable Turnover in Days

Answer 15

365 / Receivable Turnover (net credit sales/avg net receivables)

Question 16

Return on Assets

Answer 16

Net Income / Average total assets

Question 17

Return on Equity

Answer 17

Net Income - Preferred Dividends / Average Common Equity

Question 18

Return on Investment

Answer 18

Net Income + Interest Expense (1 - tax rate) / Average (long term liabilities + equity)

Question 19

Net Operating Margin (% percentage)

Answer 19

Net Operating Income / Net Sales or Operating Profit/Revenue

Question 20

Net Profit Margin

Answer 20

Net Income / Net Sales

Question 21

Gross (Profit) Margin Percentage

Answer 21

Sales - COGS / net sales

Question 22

Debt to Equity

Answer 22

Total Liabilities / Common Stockholders Equity

Question 23

How to calculate upper deviation rate for ATTRIBUTE SAMPLING?

Answer 23

Sample Deviation Rate + Allowance for Sampling Risk = Upper Deviation Rate

Question 24

Mean - Per - Unit Estimation for VARIABLE sampling?

Answer 24

Average Sample Value X Number of Items in Population = Point Estimate

uses average value of items in sample to estimate the true population value

Question 25

Ratio Estimation for VARIABLE sampling?

Answer 25

Selected Items True Value / Selected Items Book Value X Population Book Value = Point Estimate

uses the ratio of audited (correct) values of items to their book value to estimate true population value, Ratio estimation is most effective if there is a correlation between book values and audit amount

Question 26

Difference Estimation for VARIABLE sampling?

Answer 26

Step 1: Calculate Projected Error = ((BV of Sample - Audit Val of Sample) / # of items audited)*population items
Step 2: Calculate Point Estimate = Total BV of Population - Projected Error

uses the average difference between audited (correct) values of items and their book values to estimate true population value

Question 27

Sampling Interval is determined how PPS (probability proportional to size)?

Answer 27

Sampling Interval = Tolerable misstatement / Reliability factor (from table)

Question 28

Sample size is determined PPS?

Answer 28

Sample Size = Recorded amount of the population / sampling interval (from above)