Finance for Non-Finance Managers Financial Statement Analysis 2

Question 1

Which financial ratio measures how efficiently a company uses its assets to generate sales?

Accepted Answer

Asset turnover ratio

Answer

Asset turnover ratio = Net Sales / Average Total Assets, showing how efficiently assets generate revenue.

Question 2

On the income statement, what does 'gross profit' represent?

Accepted Answer

Revenue minus cost of goods sold

Answer

Gross profit is calculated by subtracting the cost of goods sold (COGS) from total revenue.

Question 3

A company reports accounts receivable of $500,000 and annual credit sales of $3,000,000. What is the receivables turnover ratio?

Accepted Answer

6.0

Answer

Receivables turnover = Credit Sales / Accounts Receivable = $3,000,000 / $500,000 = 6.0.

Question 4

What does a declining inventory turnover ratio typically signal?

Accepted Answer

Possible excess inventory or weakening demand

Answer

A declining inventory turnover ratio suggests that goods are sitting longer before being sold, indicating potential overstocking or slowing sales.

Question 5

Which section of the cash flow statement shows proceeds from issuing stock or repaying debt?

Accepted Answer

Financing activities

Answer

Financing activities include cash flows from borrowing, repaying debt, issuing stock, and paying dividends.

Finance for Non-Finance Managers Practice Test