Free Financial Ratios Questions and Answers

Question 1

A current asset account is not which of the following?

Accepted Answer

Fixtures

Answer

Fixtures are considered property, plant, and equipment (PP&E), which are long-term assets used in the business for more than one year and are not intended for sale. In contrast, Prepaid Insurance and Inventory are both current assets, as they are expected to be consumed or converted to cash within one year or the operating cycle. Therefore, fixtures are not a current asset account.

Question 2

The current asset LESS the current liabilities

Accepted Answer

Working Capital

Answer

Working capital is a key measure of a company's short-term liquidity and operational efficiency. It is calculated by subtracting current liabilities from current assets. A positive working capital indicates that a company has sufficient short-term assets to cover its short-term obligations, providing a buffer for day-to-day operations.

Question 3

Current resources Amount of current liabilities divided by the

Accepted Answer

Current Ratio

Answer

The current ratio is a liquidity ratio that assesses a company's ability to meet its short-term obligations using its current assets. It is calculated by dividing total current assets by total current liabilities. This ratio provides insight into a company's financial health and its capacity to cover immediate debts.

Question 4

Which account is NOT included in the quick ratio?

Accepted Answer

Inventory

Answer

The quick ratio, also known as the acid-test ratio, is a more conservative measure of liquidity than the current ratio. It specifically excludes inventory from current assets because inventory is often the least liquid current asset and may not be easily converted to cash quickly. The formula is (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities.

Question 5

Working capital for the business is

Accepted Answer

$66,000

Answer

Working capital is calculated as current assets minus current liabilities. Based on the consistent data derived from Q19-Q21, if current assets are $126,000 and current liabilities are $60,000, then working capital is $126,000 - $60,000 = $66,000. This indicates the capital available to manage short-term operations.

Finance for Non-Finance Managers Practice Test

Finance for Non-Finance Managers Practice Test

Free Financial Ratios Questions and Answers