IFA IFA Financial Analysis & Decision Making

Question 1

What does a current ratio of less than 1 indicate?

Accepted Answer

The company has more current liabilities than current assets

Answer

The company has more equity than debt

Answer

The company is highly profitable

Answer

The company has no long-term debt

Question 2

Which financial ratio measures how efficiently a company uses its assets to generate revenue?

Accepted Answer

Asset turnover ratio

Answer

Debt-to-equity ratio

Answer

Net profit margin

Answer

Price-to-earnings ratio

Question 3

What does EBITDA stand for and why is it used?

Accepted Answer

Earnings Before Interest, Taxes, Depreciation, and Amortization — approximates operating cash flow

Answer

Earnings Before Interest, Taxes, Dividends, and Amortization — measures cash flow

Answer

Estimated Business Income Tax and Depreciation Allowance

Answer

Equity Before Income Tax, Dividends, and Assets

Question 4

A company's gross profit margin has fallen from 45% to 32%. This most likely indicates:

Accepted Answer

Rising cost of goods sold or falling selling prices

Answer

Improved operating efficiency

Answer

Lower tax liability

Answer

Increased capital expenditure

Question 5

What is the purpose of horizontal analysis in financial statement analysis?

Accepted Answer

Comparing financial data across multiple periods to identify trends

Answer

Comparing line items across different companies

Answer

Expressing each line item as a percentage of a base figure

Answer

Analyzing only balance sheet items

Question 6

Which ratio best measures a company's ability to meet its immediate short-term obligations without selling inventory?

Accepted Answer

Quick (acid-test) ratio

Answer

Current ratio

Answer

Debt ratio

Answer

Return on equity