Ratios- Liquidity/Solvency and Operational

Question 1

How are ratios are tested?

Answer 1

Ratio formulas are provided for TBS and document review.

• Need to know how to apply

Multiple choice- The type of ratio will be self evident!

Task: calculate the ratio, evaluate the impact of a transaction or event on the ratio.

Compare ratios to debt covenants to see if they are complaint and interpret ratio results.

Question 2

Purpose of a liquidity ratio?

Answer 2

Measure ability to meet short-term and long-term obligations

Question 3

Purpose of operational ratios?

Answer 3

Measures the efficiency of operations

Question 4

Purpose of leverage/Equity Ratio?

Answer 4

Measures magnitude of debt and equity financing

Question 5

is it always good to have a high current ratio?

Answer 5

No, too high of a current ratio might mean a company isn’t collecting on A/R or selling inventory.

Question 6

Equation for Book Value Per Share

Answer 6

(Total Shareholders Equity/Outstanding Shares)

Question 7

Equation for Cost of Goods Manufactured

Answer 7

Cost of Sales= Cost of goods manufactured + Finished Goods Beginning Inventory - Finished Goods Ending Inventory