Exam and All Correct Answers (2026-
2027) Updated.
Benchmarking - Answer comparing a company against an industry standard or common
competitor to measure progress and financial performance
Trend analysis - Answer comparing a company against its past performance over a 3-5 year
period
Common size statements - Answer expressing each income statement item as a percentage of
sales or on each balance sheet as a percentage of total assets. Allows for comparison against
self or against competitors.
Financial ratios - Answer relationships between different accounts from financial statements
(usually balance sheet and income statement) that serve as performance indicators. Because
they are ratios they allow for meaningful comparisons across time
Liquidity - Answer measures a company's ability to cover its short term debt obligations in a
timely manner
Quick ratio does what - Answer modifies the current ratio
The Cash ratio is - Answer an effective ratio for seeing how much freestanding cash a firm
currently has
Solvency(Financial Leverage Ratios) - Answer measure a company's ability to cover its long
term debt obligations based on its overall debt level and earnings capacity
The Debt ratio should be - Answer less than 1, lower is better.
The Times interest earned is - Answer how many times are your earnings greater than your
interest expense
The Cash coverage ratio is - Answer how much cash is available to pay off your interest
, What do Asset management ratios do - Answer measure how a firm is using its assets to
generate revenues of how much cash is being tied up in other assets such as receivables and
inventory (could also be called efficiency ratios)
The Inventory turnover is - Answer how many times in a year you sell all inventory. The higher
the number, the more efficient you are.
The Day's sales in inventory is - Answer how many days it takes us to see through our
inventory. The lower the better.
The Receivables turnover is - Answer how often we sell through our accounts receivable
The Day's sales in receivables is - Answer how many days it takes to earn an equivalent
amount to accounts receivable
The Total asset turnover is - Answer how many times in a given year or quarter you sell
through your total assets. The higher the number, the more efficient the company.
What do Profitability ratios do? - Answer measure a firm's effectiveness in turning sales or
assets into profits
The Profit margin is - Answer how much profit we make per dollar of sales
The Return on assets is - Answer how much income we generate per dollar of assets
The Return on equity is - Answer how much profit is generated per dollar of shareholder
equity
The Market value ratios - Answer are used to gauge how attractive or reasonable a firm's
current price is relative to its earnings, growth rate, and book value
The Earnings per share (EPS) is - Answer how much earnings are there per share of stock
The Price to earnings ratio (PE) is - Answer how much am I paying per dollar of earnings
The Price/earnings-to-growth ratio (PEG) is - Answer how much you're paying per dollar of
share growth