OCC ANBE EXAM (MASTER SET) QUESTIONS AND
ANSWERS
Current Ratio (Liquidity)
Whether company is liquid enough to be able to pay its short-term debts. - Answers -
Current Assets/Current Liabilities
Quick Ratio aka Acid Test (Liquidity)
A more conservative measure of liquidity. - Answers -(cash + ST investments + AR
)/Current Liabilities
Gross Margin on Sales (Profitability)
The excess of a product's selling price over cost, which is what the company has left to
coverall remaining expenses and still make a profit. - Answers -Gross Margin/Net Sales
Profit Margin on Sales (Profitability)
The % of net sales that represents profit. - Answers -Net Income/Net Sales
Return on Assets (Profitability)
The amount of income being generated by the company"s assets. - Answers -Net
Income/Avg Total Assets
Return on Equity (Profitability)
The amount of income being germinated by the stockholders' investments - Answers -
Net Income/Avg Stockholders' Equity
Earnings per Share (Profitability)
The earnings associated with one share of common stock; the only ratio required by
GAAP to be presented with the financial statements. - Answers -(Net Income -
Preferred Dividends)/Weighted Avg # shares common outstanding
Dividend Payout Ratio (Profitability)
How much of the company's earnings are distributed to the common stockholders. -
Answers -Cash Dividends Paid/(Net Income - Preferred Dividends)
Price-Earnings Ratio (Profitability)
,How much the earnings of the company cost an investor - Answers -Mkt Price per
Share/EPS
Day Sales Outstanding (Asset Management)
On avg., how long it takes the company to collect its AR from customers. - Answers -
(AR x 365)/Net Sales
Accounts Receivable Turnover (Asset Management)
How many times in the period the company collects it AR - Answers -Net Sales/Avg.
AR
Inventory Turnover (Asset Management)
On avg., how quickly inventory is sold - Answers -CoGS/Avg Inventory
Days Inventory (Asset Management)
Using an avg rate of sales, how long the company will have inventory until it sells out,
assuming no further additions to inventory - Answers -(Avg Inv x 365)/CoGS
Asset Turnover (Asset Management)
How efficiently the company is using its assets to generate sales - Answers -Net
Sales/Avg Total Assets
Debt-to-Equity Ratio (Leverage)
How heavily burdened with debt a company is - Answers -Total Liabilities/Total
Stockholders' Equity
Debt Ratio (Leverage)
What % of the company's assets are financed by creditors - Answers -Total
Liabilities/Total Assets
Times Interest Earned (Leverage)
Whether the company's earnings are sufficient to cover its interest expense for the
period - Answers -Income before Int Exp & Taxes/Interest Expense
The Financial Statements - Answers -1) Balance Sheet
2) Income Statement (Statement of Profit & Loss)
3) Statement of Cash Flows
, 4) Statement of Owners' Equity
Balance Sheet Components - Answers -Assets
Liabilities
Owners' Equity
Income Statement Components - Answers -Revenues
Expenses
Net Income
Statement of Cash Flows Components - Answers -Operating Activities
Investing Activities
Financing Activities
Current Assets - Answers -Cash and Cash Equivalents
AR
Prepaid Expenses
Inventory
Marketable Securities
Current Liabilities - Answers -AP
Accrued Liabilities (wages, interest payable, taxes payable, deferred revenues)
Long-term Liabilities - Answers -Accrued Liabilities
Leases (Capital Lease, Operating Lease)
Pension Benefit Obligations
Contingent Liabilities (must be probable & estimable)
Notes Payable
Deferred Taxes Liability
Long-term Debt
Debits (Left) and Credits (Right) - Answers -Debits-increase asset and expense
accounts and decrease liability and revenue accounts
Credits-increase liability and revenue accounts and decrease asset and expense
accounts
Relationship between Balance Sheet & Income Statement - Answers -Net income from
the Income Statement that isn't paid out as a dividend becomes Retained Earnings on
the Balance Sheet
Time Value of Money (TVM) - Answers -Money today is worth more than money in the
future due to its potential earning capacity
Future Value (FV) - Answers -The value of cash at a specified date in the future that is
equal in value to a specified sum today
ANSWERS
Current Ratio (Liquidity)
Whether company is liquid enough to be able to pay its short-term debts. - Answers -
Current Assets/Current Liabilities
Quick Ratio aka Acid Test (Liquidity)
A more conservative measure of liquidity. - Answers -(cash + ST investments + AR
)/Current Liabilities
Gross Margin on Sales (Profitability)
The excess of a product's selling price over cost, which is what the company has left to
coverall remaining expenses and still make a profit. - Answers -Gross Margin/Net Sales
Profit Margin on Sales (Profitability)
The % of net sales that represents profit. - Answers -Net Income/Net Sales
Return on Assets (Profitability)
The amount of income being generated by the company"s assets. - Answers -Net
Income/Avg Total Assets
Return on Equity (Profitability)
The amount of income being germinated by the stockholders' investments - Answers -
Net Income/Avg Stockholders' Equity
Earnings per Share (Profitability)
The earnings associated with one share of common stock; the only ratio required by
GAAP to be presented with the financial statements. - Answers -(Net Income -
Preferred Dividends)/Weighted Avg # shares common outstanding
Dividend Payout Ratio (Profitability)
How much of the company's earnings are distributed to the common stockholders. -
Answers -Cash Dividends Paid/(Net Income - Preferred Dividends)
Price-Earnings Ratio (Profitability)
,How much the earnings of the company cost an investor - Answers -Mkt Price per
Share/EPS
Day Sales Outstanding (Asset Management)
On avg., how long it takes the company to collect its AR from customers. - Answers -
(AR x 365)/Net Sales
Accounts Receivable Turnover (Asset Management)
How many times in the period the company collects it AR - Answers -Net Sales/Avg.
AR
Inventory Turnover (Asset Management)
On avg., how quickly inventory is sold - Answers -CoGS/Avg Inventory
Days Inventory (Asset Management)
Using an avg rate of sales, how long the company will have inventory until it sells out,
assuming no further additions to inventory - Answers -(Avg Inv x 365)/CoGS
Asset Turnover (Asset Management)
How efficiently the company is using its assets to generate sales - Answers -Net
Sales/Avg Total Assets
Debt-to-Equity Ratio (Leverage)
How heavily burdened with debt a company is - Answers -Total Liabilities/Total
Stockholders' Equity
Debt Ratio (Leverage)
What % of the company's assets are financed by creditors - Answers -Total
Liabilities/Total Assets
Times Interest Earned (Leverage)
Whether the company's earnings are sufficient to cover its interest expense for the
period - Answers -Income before Int Exp & Taxes/Interest Expense
The Financial Statements - Answers -1) Balance Sheet
2) Income Statement (Statement of Profit & Loss)
3) Statement of Cash Flows
, 4) Statement of Owners' Equity
Balance Sheet Components - Answers -Assets
Liabilities
Owners' Equity
Income Statement Components - Answers -Revenues
Expenses
Net Income
Statement of Cash Flows Components - Answers -Operating Activities
Investing Activities
Financing Activities
Current Assets - Answers -Cash and Cash Equivalents
AR
Prepaid Expenses
Inventory
Marketable Securities
Current Liabilities - Answers -AP
Accrued Liabilities (wages, interest payable, taxes payable, deferred revenues)
Long-term Liabilities - Answers -Accrued Liabilities
Leases (Capital Lease, Operating Lease)
Pension Benefit Obligations
Contingent Liabilities (must be probable & estimable)
Notes Payable
Deferred Taxes Liability
Long-term Debt
Debits (Left) and Credits (Right) - Answers -Debits-increase asset and expense
accounts and decrease liability and revenue accounts
Credits-increase liability and revenue accounts and decrease asset and expense
accounts
Relationship between Balance Sheet & Income Statement - Answers -Net income from
the Income Statement that isn't paid out as a dividend becomes Retained Earnings on
the Balance Sheet
Time Value of Money (TVM) - Answers -Money today is worth more than money in the
future due to its potential earning capacity
Future Value (FV) - Answers -The value of cash at a specified date in the future that is
equal in value to a specified sum today
