Financial Management for Project Managers Financial Ratio 2 — Questions and Answers
Question 1: A project has total assets of $500,000 and total liabilities of $200,000. What is the debt-to-equity ratio?
- 0.40
- 0.67 (Correct answer)
- 2.50
- 1.50
Correct answer: 0.67
Equity = $500,000 - $200,000 = $300,000; Debt-to-Equity = $200,000 / $300,000 = 0.67.
Question 2: Which financial ratio best measures a project's ability to generate profit relative to its revenue?
- Current ratio
- Net profit margin (Correct answer)
- Debt-to-equity ratio
- Asset turnover ratio
Correct answer: Net profit margin
Net profit margin = Net Income / Revenue, directly measuring profitability per dollar of revenue.
Question 3: A project reports EBIT of $80,000 and interest expense of $20,000. What is the interest coverage ratio?
- 4.0 (Correct answer)
- 0.25
- 3.0
- 5.0
Correct answer: 4.0
Interest Coverage Ratio = EBIT / Interest Expense = $80,000 / $20,000 = 4.0.
Question 4: When a project manager evaluates the quick ratio, which asset is EXCLUDED that the current ratio includes?
- Cash
- Accounts receivable
- Inventory (Correct answer)
- Marketable securities
Correct answer: Inventory
The quick ratio excludes inventory because it is less liquid than cash, receivables, or marketable securities.
Question 5: A project's return on investment (ROI) is 25%. If the net profit is $50,000, what was the total investment?
- $12,500
- $62,500
- $200,000 (Correct answer)
- $125,000
Correct answer: $200,000
ROI = Net Profit / Investment; Investment = $50,000 / 0.25 = $200,000.
Question 6: Which ratio would a project manager use to assess how efficiently a project converts assets into revenue?
- Current ratio
- Gross margin ratio
- Asset turnover ratio (Correct answer)
- Quick ratio
Correct answer: Asset turnover ratio
Asset turnover ratio = Revenue / Total Assets, measuring efficiency of asset use in generating revenue.
Question 7: A project has a current ratio of 1.2 and current liabilities of $100,000. What are the current assets?
- $83,333
- $100,000
- $120,000 (Correct answer)
- $112,000
Correct answer: $120,000
Current Assets = Current Ratio × Current Liabilities = 1.2 × $100,000 = $120,000.
Financial Management for Project Managers Financial Ratio 2
A project has total assets of $500,000 and total liabilities of $200,000.
What is the debt-to-equity ratio?