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
A project manager compares the project's current ratio of 0.8 to the industry benchmark of 1.5. What action is most appropriate?
Answer: Investigate and improve short-term liquidity position
A current ratio below 1.0 means current liabilities exceed current assets, indicating a potential short-term liquidity problem to address.
Return on assets (ROA) differs from ROE because ROA measures profitability relative to:
Answer: Total assets including debt-financed assets
ROA = Net Income / Total Assets, which includes both equity and debt-funded assets, unlike ROE which uses only equity.
A project's accounts payable balance is $40,000 and annual purchases are $240,000. What is the payables turnover ratio?
Answer: 6.0
Payables Turnover = Annual Purchases / Accounts Payable = $240,000 / $40,000 = 6.0.
Which financial ratio is most relevant when a project manager needs to evaluate long-term financial stability rather than short-term liquidity?
Answer: Debt-to-equity ratio
The debt-to-equity ratio measures the proportion of debt vs. equity financing, reflecting long-term capital structure and solvency.
A project has gross profit of $180,000 and revenue of $450,000. What is the gross profit margin?
Answer: 40%
Gross Profit Margin = Gross Profit / Revenue = $180,000 / $450,000 = 0.40 = 40%.
When a project manager sees that the cost-to-income ratio has risen from 55% to 72%, what does this signal?
Answer: Costs are consuming a larger share of income, reducing profitability
A rising cost-to-income ratio means expenses are growing faster than income, squeezing the project's profit margin.
Which of the following best describes the purpose of the cash conversion cycle (CCC) ratio in project financial management?
Answer: Quantifies how long it takes to convert investments in inventory into cash from sales
The CCC measures the time between spending cash on inputs and collecting cash from customers, reflecting working capital efficiency.