FIN2601 - Chapter 3) Introduction to ratios exam with correct 100% answers.

With increased debt comes greater risk, as well as higher potential reward. Therefore, the greater the financial ___________, the greater the potential risk and reward. - correct answer leverage Financial ________________ is the magnification of risk and return through the use of fixed-cost financing, such as debt and preference share capital. The more fixed debt a firm uses, the greater will be its expected risk and return. - correct answer leverage Which ratio measures the proportion of total assets financed by the firms creditors? - correct answer Debt ratio Which ratio is: Total liabilities/Total assets - correct answer Debt ratio Assets = 300,000 Liabilities = 180,000 What is owners equity? - correct answer 120,000 Owners Equity = 50,000 Liabilities = 180,000 What is the Total Assets? - correct answer 230,000 What does EBIT stand for? - correct answer Earnings before Interest and Tax What does FLM stand for? - correct answer Financial Leverage Multiplier What does ROA stand for? - correct answer Return on Assets What does ROE stand for? - correct answer Return on Equity When you see the word margin in a ratio, what is always the denominator? - correct answer Sales What ratio is this: Assets/Equity - correct answer Financial Leverage Multiplier Sales - CoS = - correct answer Gross profit Margin What does EPS stand for? - correct answer Earnings Per Share Measures the percentage of each sales rand remaining after all costs and expenses, including (interest, taxes and preference share dividends) have been deducted. What does this describe? - correct answer Net Profit Margin (NPM) Profit for the year - Preference share dividend/ sales = - correct answer Net Profit Margin (NPM) What does TAT stand for? - correct answer Total Asset Turnover The ________________________ indicates the efficiency with which the firms uses its assets to generate sales - correct answer Total Asset Turnover _________________ measures the overall effectiveness of management in generating profits with its available assets - correct answer Return on Assets Current assets/current liabilities = - correct answer Current ratio Current assets = 1,223,000 Current liabilities = 620,000. What is the current ratio? - correct answer 1.97 Which ratio measures the firms ability to meet its short term obligations? - correct answer Current ratio Current assets - Inventory/ Current Liabilities = - correct answer Quick Ratio (AKA acid test) What is the least liquid current asset? - correct answer Inventory The Quick Ratio (AKA acid test) is similar to Current ratio, except that the Quick Ratio (AKA acid test) excludes? - correct answer Inventory Quick ratio or Current ratio: The _____________ ratio provides a better overall measure of liquidity only when a firm's inventory cannot be easily converted to cash. If inventory is liquid, the _______________ ratio is a preferable measure of overall liquidity. - correct answer Quick, Current ______________, a firm's ability to satisfy its short-term obligations as the come due. - correct answer Liquidity What does of AAI stand for? - correct answer Average Age of Inventory 365/Inventory turnover = - correct answer Average Age of Inventory Cost of Goods/Inventory = - correct answer Inventory turnover Current ratio = 1.6, Current liabilities = 1,000,000 What is current assets? - correct answer 1,600,000 Quick ratio = 1.2, CA = 1,600,000 CL=1,000,000 What is inventory? - correct answer 400,000 Cost of Goods sold = 2,000,000 Inventory = 400,000 What is inventory turnover? - correct answer 5