Accounting Online Program Accounting Financial Ratios 3

Question 1

A company has current assets of $500,000, inventory of $150,000, and current liabilities of $200,000. What is the quick ratio?

Accepted Answer

1.75

Answer

Quick ratio = (Current Assets − Inventory) / Current Liabilities = ($500,000 − $150,000) / $200,000 = 1.75.

Question 2

Which of the following best describes the DuPont analysis framework?

Accepted Answer

A method to decompose ROE into net profit margin, asset turnover, and equity multiplier

Answer

DuPont analysis breaks ROE into three components: net profit margin, asset turnover, and the equity multiplier (financial leverage).

Question 3

If inventory turnover is 8 times per year, the average days in inventory is approximately:

Accepted Answer

46 days

Answer

Days in inventory = 365 / Inventory Turnover = 365 / 8 ≈ 45.6 days.

Question 4

A company with a high asset turnover ratio but a low net profit margin most likely competes in which type of industry?

Accepted Answer

Grocery retail

Answer

Grocery retailers typically operate on thin margins but turn over assets rapidly due to high sales volume relative to asset base.

Question 5

The equity multiplier in DuPont analysis is calculated as:

Accepted Answer

Total Assets / Total Equity

Answer

The equity multiplier = Total Assets / Total Equity, and it measures financial leverage.

Accounting Online Program Practice Test