Cards (66)

  • Ratio Analysis is a technique used to evaluate a company's financial performance
  • Ratio Analysis involves calculating ratios to compare key financial figures.
  • Match the type of ratio with its purpose:
    Profitability Ratios ↔️ Measures profitability
    Liquidity Ratios ↔️ Measures short-term debt coverage
    Efficiency Ratios ↔️ Measures asset utilization
  • Order the steps involved in using Ratio Analysis to evaluate a company's financial health:
    1️⃣ Identify the financial ratios
    2️⃣ Calculate the ratios using financial data
    3️⃣ Interpret the ratio results
  • What do Profitability Ratios measure?
    Company's ability to generate profits
  • Liquidity Ratios assess the company's short-term financial health
  • How do Efficiency Ratios evaluate a company's performance?
    By measuring asset utilization
  • The Gross Profit Margin measures profitability after accounting for the cost of goods sold.
  • The Net Profit Margin shows the profit left after all expenses are deducted
  • What does the Return on Capital Employed (ROCE) indicate?
    How well capital generates earnings
  • A Current Ratio above 1 suggests good liquidity.
  • The Quick Ratio provides a more conservative measure of liquidity by excluding inventory
  • What does Ratio Analysis help stakeholders understand?
    Financial strengths and weaknesses
  • The Current Ratio measures a company's ability to meet short-term obligations.
  • A Current Ratio of 2 indicates the company can cover its short-term debts twice
  • What does the Gross Profit Margin measure?
    Profitability after cost of goods sold
  • The Net Profit Margin shows the profit remaining after all expenses are deducted from revenue.
  • What does the Return on Capital Employed (ROCE) indicate about a company?
    Efficiency in using capital
  • A Current Ratio above 1 suggests good liquidity.
  • The Quick Ratio excludes inventory
  • What does the Asset Turnover Ratio measure?
    Efficiency in using assets
  • A higher Inventory Turnover Ratio suggests faster inventory turnover.
  • What does the Days Sales Outstanding (DSO) represent?
    Time to collect payment
  • The Debt-to-Equity Ratio measures debt relative to equity
  • What does the Debt-to-Capital Ratio measure?
    Debt in total capital
  • What does a higher debt-to-equity ratio suggest about a company's financial risk?
    More financial risk
  • The debt-to-capital ratio measures the proportion of debt in a company's total capital
  • Arrange the steps involved in ratio analysis to evaluate a company's financial performance.
    1️⃣ Calculate ratios
    2️⃣ Identify strengths and weaknesses
    3️⃣ Make informed decisions
  • Ratio analysis involves comparing key financial figures to understand a company's profitability, liquidity, efficiency, and solvency.
  • What are the three main types of financial ratios used in ratio analysis?
    Profitability, liquidity, efficiency
  • Profitability ratios measure a company's ability to generate profits relative to its revenue
  • What do liquidity ratios assess about a company?
    Short-term obligations
  • Efficiency ratios evaluate how well a company utilizes its assets to generate revenue.
  • What does the gross profit margin measure?
    Profitability after cost of goods sold
  • The net profit margin shows the profit left after all expenses
  • Return on capital employed indicates how well a company uses its capital to generate earnings.
  • What do liquidity ratios measure about a company?
    Ability to meet short-term obligations
  • A current ratio above 1 suggests good liquidity
  • Match the liquidity ratio with its formula:
    Current Ratio ↔️ Current AssetsCurrent Liabilities\frac{\text{Current Assets}}{\text{Current Liabilities}}
    Quick Ratio ↔️ Current AssetsInventoryCurrent Liabilities\frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}
  • Both the current ratio and the quick ratio indicate good liquidity when above 1.