Financial Ratio Flashcards
7 cards from real Financial Management for Project Managers practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Ratio flashcards as text
Which ratio specifically helps a project manager assess whether the project can service its debt obligations from operating earnings?
Answer: Debt service coverage ratio (DSCR)
DSCR = Net Operating Income / Total Debt Service, measuring ability to cover debt payments from operations.
A project generates $120,000 in net income on $800,000 in equity. What is the return on equity (ROE)?
Answer: 15%
ROE = Net Income / Equity = $120,000 / $800,000 = 0.15 = 15%.
In financial ratio analysis, what does a high inventory turnover ratio generally indicate for a project?
Answer: Inventory is being sold and replenished efficiently
A high inventory turnover ratio indicates that inventory is being converted to sales quickly, reflecting operational efficiency.
A project manager is reviewing a project with EBITDA of $200,000 and total debt of $800,000. What is the debt-to-EBITDA ratio?
Answer: 4.0
Debt-to-EBITDA = Total Debt / EBITDA = $800,000 / $200,000 = 4.0.
What is the primary limitation of using financial ratios in isolation when evaluating a project?
Answer: Ratios lack industry or benchmark context to determine whether values are good or bad
A ratio value is meaningless without comparison to industry benchmarks, historical trends, or project targets.
A project has $30,000 cash, $70,000 accounts receivable, $50,000 inventory, and $100,000 current liabilities. What is the quick ratio?
Answer: 1.0
Quick Ratio = (Cash + Receivables) / Current Liabilities = ($30,000 + $70,000) / $100,000 = 1.0.
Which scenario would cause a project's net profit margin to decrease while revenue stays constant?
Answer: Increase in operating expenses
Higher operating expenses reduce net income while revenue remains unchanged, compressing the net profit margin.