Topics 2: Financial Ratios

Question 1

What are the two kinds of ratio analysis?

Answer 1

time series analysis

cross-sectional analysis

Question 2

What are the types of financial ratios

Answer 2

liquidity
activity
leverage
profitability

Question 3

What are the liquidity ratios

Answer 3

current ratio
quick, acid test, ratio
net working capital (not ratio)

Question 4

What are the activity ratios

Answer 4

accounts receivable turnover
average collection period

inventory turnover
average age of inventory

average payment period

Question 5

What are the debt ratios

Answer 5

debt ratio
long term debt to equity ratio
times interest earned

Question 6

What are the types profitability ratios?

Answer 6

investment ratio

margin ratios

Question 7

What are the margin ratios

Answer 7

gross profit margin
operating profit margin
net profit margin

Question 8

What are the investment ratio

Answer 8

earnings per share

price/earnings ratio

Question 9

What are the limitations of ratio

Answer 9

single ratio not sufficient
not dated to same point, distortion
unaudited, dubious figure
different accounting policies, distort
historical, economic conditions change