Financial Management for Project Managers Financial Ratio 5

Question 1

A project manager compares the project's current ratio of 0.8 to the industry benchmark of 1.5. What action is most appropriate?

Accepted Answer

Investigate and improve short-term liquidity position

Answer

A current ratio below 1.0 means current liabilities exceed current assets, indicating a potential short-term liquidity problem to address.

Question 2

Return on assets (ROA) differs from ROE because ROA measures profitability relative to:

Accepted Answer

Total assets including debt-financed assets

Answer

ROA = Net Income / Total Assets, which includes both equity and debt-funded assets, unlike ROE which uses only equity.

Question 3

A project's accounts payable balance is $40,000 and annual purchases are $240,000. What is the payables turnover ratio?

Accepted Answer

6.0

Answer

Payables Turnover = Annual Purchases / Accounts Payable = $240,000 / $40,000 = 6.0.

Question 4

Which financial ratio is most relevant when a project manager needs to evaluate long-term financial stability rather than short-term liquidity?

Accepted Answer

Debt-to-equity ratio

Answer

The debt-to-equity ratio measures the proportion of debt vs. equity financing, reflecting long-term capital structure and solvency.

Question 5

A project has gross profit of $180,000 and revenue of $450,000. What is the gross profit margin?

Accepted Answer

40%

Answer

Gross Profit Margin = Gross Profit / Revenue = $180,000 / $450,000 = 0.40 = 40%.

Financial Management for Project Managers Practice Test