MGT 6201 - ACCOUNTING WEEK 3 QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026
What is ratio analysis? - Answers A technique that examines the relationships among various account
balances in financial reports.
What does ratio analysis help to remove? - Answers The 'size' effect, allowing comparisons of firms of
different sizes or over time.
What is a limitation of ratio analysis related to costs? - Answers Non-capitalized costs cannot be
identified with enough precision to warrant capitalization.
What does Return on Assets (ROA) measure? - Answers The return generated by a company's assets.
How is Return on Assets (ROA) calculated? - Answers ROA = Net Income / Average Total Assets.
What does Profit Margin (PM) indicate? - Answers How much profit the company earns from each
sales dollar.
How is Profit Margin (PM) calculated? - Answers PM = Net Income / Sales Revenue.
What does Asset Turnover (AT) measure? - Answers The productivity of the company's assets.
How is Asset Turnover (AT) calculated? - Answers AT = Sales Revenue / Average Total Assets.
What does Return on Equity (ROE) measure? - Answers The profit generated from the resources that
owners provide.
How is Return on Equity (ROE) calculated? - Answers ROE = Net Income / Average Shareholders'
Equity.
What does the Current Ratio measure? - Answers The ability of the company to meet its short-term
obligations.
How is the Current Ratio calculated? - Answers Current Ratio = Current Assets / Current Liabilities.
What is working capital? - Answers The excess of current assets over current liabilities (Current Assets
- Current Liabilities).
What does the Quick Ratio measure? - Answers The ability to meet short-term obligations using the
most liquid assets.
How is the Quick Ratio calculated? - Answers Quick Ratio = (Cash + Marketable Securities + Accounts
Receivable) / Current Liabilities.
What does the Debt-to-Equity ratio indicate? - Answers The proportion of a company's total liabilities
to its shareholders' equity.
How is the Debt-to-Equity ratio calculated? - Answers Debt-to-Equity = Total Liabilities /
Shareholders' Equity.
What does the Receivables Turnover Rate measure? - Answers How many times receivables have
been collected during the period.
How is the Receivables Turnover Rate calculated? - Answers Receivables Turnover = Sales Revenue /
Average Accounts Receivable.
What does the Average Collection Period indicate? - Answers The average number of days it takes
the company to collect its accounts receivable.
How is the Average Collection Period calculated? - Answers Average Collection Period = 365 /
Receivables Turnover.
What does Inventory Turnover measure? - Answers How many times inventory was sold during the
period.
How is Inventory Turnover calculated? - Answers Inventory Turnover = Cost of Goods Sold / Average
Inventory.
What does the Average Days Inventory Held indicate? - Answers The average number of days it takes
the company to sell its inventory.
How is Average Days Inventory Held calculated? - Answers Average Days Inventory Held = 365 /
Inventory Turnover.
What does the Payables Turnover measure? - Answers How many times payables were paid during
the period.
How is Payables Turnover calculated? - Answers Payables Turnover = Cost of Goods Sold / Average
Accounts Payable.
What does the Average Days Payables indicate? - Answers The average number of days the firm
waited to pay its payables.
How is Average Days Payables calculated? - Answers Average Days Payables = 365 / Payables
Turnover.
What is ratio analysis? - Answers A technique that examines the relationships among various account
balances in financial reports.
What does ratio analysis help to remove? - Answers The 'size' effect, allowing comparisons of firms of
different sizes or over time.
What is a limitation of ratio analysis related to costs? - Answers Non-capitalized costs cannot be
identified with enough precision to warrant capitalization.
What does Return on Assets (ROA) measure? - Answers The return generated by a company's assets.
How is Return on Assets (ROA) calculated? - Answers ROA = Net Income / Average Total Assets.
What does Profit Margin (PM) indicate? - Answers How much profit the company earns from each
sales dollar.
How is Profit Margin (PM) calculated? - Answers PM = Net Income / Sales Revenue.
What does Asset Turnover (AT) measure? - Answers The productivity of the company's assets.
How is Asset Turnover (AT) calculated? - Answers AT = Sales Revenue / Average Total Assets.
What does Return on Equity (ROE) measure? - Answers The profit generated from the resources that
owners provide.
How is Return on Equity (ROE) calculated? - Answers ROE = Net Income / Average Shareholders'
Equity.
What does the Current Ratio measure? - Answers The ability of the company to meet its short-term
obligations.
How is the Current Ratio calculated? - Answers Current Ratio = Current Assets / Current Liabilities.
What is working capital? - Answers The excess of current assets over current liabilities (Current Assets
- Current Liabilities).
What does the Quick Ratio measure? - Answers The ability to meet short-term obligations using the
most liquid assets.
How is the Quick Ratio calculated? - Answers Quick Ratio = (Cash + Marketable Securities + Accounts
Receivable) / Current Liabilities.
What does the Debt-to-Equity ratio indicate? - Answers The proportion of a company's total liabilities
to its shareholders' equity.
How is the Debt-to-Equity ratio calculated? - Answers Debt-to-Equity = Total Liabilities /
Shareholders' Equity.
What does the Receivables Turnover Rate measure? - Answers How many times receivables have
been collected during the period.
How is the Receivables Turnover Rate calculated? - Answers Receivables Turnover = Sales Revenue /
Average Accounts Receivable.
What does the Average Collection Period indicate? - Answers The average number of days it takes
the company to collect its accounts receivable.
How is the Average Collection Period calculated? - Answers Average Collection Period = 365 /
Receivables Turnover.
What does Inventory Turnover measure? - Answers How many times inventory was sold during the
period.
How is Inventory Turnover calculated? - Answers Inventory Turnover = Cost of Goods Sold / Average
Inventory.
What does the Average Days Inventory Held indicate? - Answers The average number of days it takes
the company to sell its inventory.
How is Average Days Inventory Held calculated? - Answers Average Days Inventory Held = 365 /
Inventory Turnover.
What does the Payables Turnover measure? - Answers How many times payables were paid during
the period.
How is Payables Turnover calculated? - Answers Payables Turnover = Cost of Goods Sold / Average
Accounts Payable.
What does the Average Days Payables indicate? - Answers The average number of days the firm
waited to pay its payables.
How is Average Days Payables calculated? - Answers Average Days Payables = 365 / Payables
Turnover.
