#1
What is the purpose of the current ratio in financial analysis?
To measure a company's ability to pay its short-term liabilities with its short-term assets
ExplanationAssesses liquidity and short-term financial health.
#2
Which of the following financial ratios measures a company's efficiency in using its assets to generate sales?
Inventory turnover ratio
ExplanationReflects how quickly inventory is sold.
#3
Which accounting principle states that assets should be recorded at their original cost?
Historical cost principle
ExplanationAssets recorded at purchase price.
#4
What is the formula for calculating the gross profit margin?
(Sales - Cost of Goods Sold) / Sales
ExplanationProfitability relative to sales.
#5
Which financial ratio measures a company's ability to cover its interest expenses with its earnings before interest and taxes (EBIT)?
Interest coverage ratio
ExplanationAssesses ability to cover interest.
#6
What does the debt-to-equity ratio indicate about a company?
The proportion of a company's assets financed by creditors compared to those financed by shareholders
ExplanationShows reliance on debt versus equity for financing.
#7
Which accounting principle requires that expenses should be recognized in the same period as the revenue they help to generate?
Matching principle
ExplanationEnsures proper matching of revenue and expenses.
#8
Which financial ratio is used to assess a company's ability to cover its interest expenses with its earnings before interest and taxes (EBIT)?
Times interest earned ratio
ExplanationMeasures interest payment coverage.
#9
What is the purpose of the quick ratio in financial analysis?
To measure a company's ability to pay its short-term liabilities with its most liquid assets
ExplanationFocuses on immediate liquidity.
#10
Which financial ratio provides insight into how efficiently a company uses its assets to generate profit?
Gross profit margin
ExplanationProfitability relative to assets.
#11
Under the cash basis of accounting, when are revenues recognized?
When cash is received
ExplanationRevenue recognized upon cash receipt.
#12
Which financial ratio measures a company's ability to generate profit from its shareholders' equity?
Return on equity (ROE)
ExplanationEfficiency in using equity for profit.
#13
What is the purpose of the operating cash flow ratio?
To measure a company's ability to cover its current liabilities with its operating cash flow
ExplanationAssesses liquidity through cash flow.
#14
What is the formula for calculating the current ratio?
Current assets / Current liabilities
ExplanationAssessment of liquidity.