FA Financial Reporting & Analysis 2

Question 1

What does the current ratio measure?

Accepted Answer

A company's ability to meet short-term obligations using current assets

Answer

A company's ability to pay long-term debt obligations

Answer

A company's profitability relative to total assets

Answer

A company's efficiency in collecting receivables

Question 2

If a company's accounts receivable turnover is 8, what is the approximate average collection period (days sales outstanding)?

Accepted Answer

45.6 days

Answer

8 days

Answer

32 days

Answer

73 days

Question 3

Which profitability ratio measures how effectively a company uses its total assets to generate net income?

Accepted Answer

Return on Assets (ROA)

Answer

Return on Equity (ROE)

Answer

Net Profit Margin

Answer

Gross Profit Margin

Question 4

The quick ratio differs from the current ratio primarily by excluding which asset?

Accepted Answer

Inventory

Answer

Cash and cash equivalents

Answer

Accounts receivable

Answer

Short-term marketable securities

Question 5

Under DuPont analysis, Return on Equity (ROE) is decomposed into which three components?

Accepted Answer

Profit margin × Asset turnover × Equity multiplier

Answer

Gross margin × Asset turnover × Debt ratio

Answer

Net income × Total assets × Equity

Answer

Operating margin × Revenue growth × Leverage ratio

Question 6

Which of the following best describes the debt-to-equity ratio?

Accepted Answer

Total liabilities divided by total equity

Answer

Total assets divided by total equity

Answer

Long-term debt divided by total assets

Answer

Interest expense divided by total debt

Question 7

A price-to-earnings (P/E) ratio of 20 most accurately means that:

Accepted Answer

Investors are paying $20 for every $1 of annual earnings

Answer

The company earns $20 for every dollar of equity invested

Answer

The stock price is 20% above its book value

Answer

Earnings are growing at 20% per year