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FinanceProfessor's Introduction to Financial Ratios Quiz

1. Ratios are ______.
     a. useful as a screening tool.
     b. useful for internal control as an early warning system
     c. difficult to compare across industries or across countries.
     d. a means of summarizing large amounts of data.
     e. all of the above.

2. The Times Interest Earned ratio (TIE) is ____.
     a. often used to measure a firm's ability to pay its interest expense.
     b. often used to measure how well a firm utilizes its assets.
     c. often used to measure the overall profit margin of the firm.
     d. calculated by dividing net Income by dividends and interest.
     e. all of the above.

3. The ____ and ____ ratios are examples of liquidity ratios.
    a. TIE and Debt/Equity
    b. Sales Turnover and Inventory Turnover
    c. Quick and Current 
    d.  Acid test and fixed charge earned ratio

4. Market value ratios include which of the following?
     a.  Price Earnings
     b. Market to Book
    c. Q-Ratio
    d. all of the above

5. The payout ratio measures _______.
     a. Dividend Yield
     b. the firm's profitability
     c. ROE.
     d. Percentage of a firm's earnings that it pays out to shareholders
     e. DuPont Analysis

For questions 6-10 consider the following from The MJW Group
 

Sales	1200	A/R   300
Cost of Goods Sold (COGS)	650	Total Current Assets 600
		Total Assets 1500
Labor Expense	100	Total Liabilities   600
Utility Expense	50
SGA expense	100	Shares outstanding 450
Depreciation	40
Net Interest Expense	10
Tax Rate	40%
Dividends	30

6. What is the Firm's Gross Margin Percentage?
        a. 50%     b. 45.8%    c. 65.2%    d. 34%    e. None of the above

7. What is the firm's Return on Equity?
         a. 5%     b. 14.9%    c. 16.6%    d. 25%    e. None of the above

8. What is the firm's Payout ratio?     
        a. 12%     b. 34%    c. 20%    d. 67%    e. None of the above

9. Assuming the firms has constant sales throughout the year and credit terms of 2/10, net 30, which of the following is true?
        a. The Accounts Receivable staff should be praised for getting people to pay early.
        b. The Accounts Receivable turnover ratio is higher than would be anticipated given the firm's credit terms.
        c. The firm is being too harsh with their credit policy.
        d. The Accounts Receivable department is not enforcing their policy.
        e. All of the above are true.

10. What is the firm's stock price if the Market to Book ratio is 3.5?
        a. $  9.00
        b. $14.00
        c. $23.00
        d. $17.00
        e. $  7.00
 
 

 
Answers

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