In – Class Activity (1) – Fall 2021

Chapter 3 – Ratio Analysis

Question: Choose the correct Answer
1) A(n) ________ provides a financial summary of a firm's operating results during a
specified period.
A) income statement
B) balance sheet
C) statement of cash flows
D) statement of retained earnings

2) The ________ represents a summary statement of a firm's financial position at a given

point in time.
A) income statement
B) balance sheet
C) statement of cash flows
D) statement of retained earnings

3) The primary concern of creditors when assessing the strength of a firm is its ________.
A) profitability
B) leverage
C) short-term liquidity
D) share price

4) ________ analysis involves the comparison of different firms' financial ratios at the same
point in time.
A) Time-series
B) Cross-sectional
C) Marginal
D) Technical

5) Which of the following is used to analyze a firm's financial performance over different
years?
A) time-series analysis
B) break-even analysis
C) gap analysis
D) marginal analysis

6) An analyst should be careful when conducting ratio analysis to ensure that ________.
A) the overall performance of a firm is not judged on a single ratio
B) the role of inflation is ignored
C) ratios being compared should be calculated using financial statements dated at different points
in time during the year
D) different accounting procedures are used
7) The ________ ratios are primarily used as measures of return.
A) liquidity
B) activity
C) debt
D) profitability

8) The two categories of ratios that should be utilized to assess a firm's true liquidity are
the ________.
A) liquidity and market ratios
B) liquidity and profitability ratios
C) market and debt ratios
D) liquidity and activity ratios

9) Which of the following is true of current ratio?

A) The more predictable a firm's cash flows, the higher the acceptable current ratio.
B) A higher current ratio indicates a higher return on equity.
C) The more predictable a firm's current ratio, the higher the current liabilities.
D) A higher current ratio indicates a greater degree of liquidity

10) Which of the following is excluded when calculating quick ratio?

A) accounts receivable
B) accounts payable
C) cash
D) inventory

11) ________ ratios are a measure of the speed with which various accounts are converted
into sales or cash.
A) Activity
B) Liquidity
C) Debt
D) Profitability

12) If an inventory turnover is divided into 365, it becomes a measure of ________.

A) financial efficiency
B) the average age of the inventory
C) sales turnover
D) the average collection period

13) ABC Corp. extends credit terms of 45 days to its customers. Its credit collection would
likely be considered poor if its average collection period was ________.
A) 30 days
B) 36 days
C) 44 days
D) 57 days
14) The ________ ratio indicates the efficiency with which a firm uses its assets to generate
sales.
A) inventory turnover
B) total asset turnover
C) quick
D) current asset turnover

15) ________ ratio measures a firm's ability to pay contractual interest payments.
A) Times interest earned
B) Fixed-payment coverage
C) Debt
D) Average payment period

Table 3.1

Information (2013 values)

1. Sales totaled $110,000
2. The gross profit margin was 25 percent.
3. Inventory turnover was 3.0.
4. There are 360 days in the year.
5. The average collection period was 65 days.
6. The current ratio was 2.40.
7. The total asset turnover was 1.13.
8. The debt ratio was 53.8 percent.

16) Inventory for CEE in 2013 was ________. (See Table 3.1)
A) $36,667
B) $32,448
C) $27,500
D) $ 9,167

17) Accounts receivable for CEE in 2013 was ________. (See Table 3.1)
A) $14,056
B) $19,861
C) $14,895
D) $18,333
18) Total Current Assets equal to:

A) 51,861
B) 47,361
C) 36,528
D) 57,369

19) Long-term debt for CEE in 2013 was ________. (See Table 3.1)
A) $30,763
B) $52,372
C) $10,608
D) $41,372

20) ________ measures the percentage of each sales dollar remaining after all costs and
expenses, including interest, taxes, and preferred stock dividends, have been deducted.
A) Net profit margin
B) Operating profit margin
C) Gross profit margin
D) Earnings available to common shareholders

21. The current ratio of a firm would equal its quick ratio whenever
A) the firm has no inventory.
B) the firm's inventory is equal to its other current assets.
C) the firm's inventory is equal to its current liabilities.
D) the firm's current ratio is equal to one.

22. The true owners of the corporation are the

A) holders of debt issues of the firm. B) preferred stockholders.
C) board of directors of the firm. D) common stockholders.

23. The question "Did the firm makes an adequate profit on their investment?" is answered
using
A) liquidity ratios. B) profitability ratios. C) coverage ratios. D) leverage ratios

25. Spinnit, Limited has a debt ratio of .57, current liabilities of $14,000, and total assets of
$70,000. What is the level of Spinnit, Limited's total liabilities?
A) $25,900 B) $24,600 C) $39,900 D) $53,900

26. A decrease in ________ will increase gross profit margin.

A) cost of goods sold B) depreciation expense C) interest expense D) both A and B