Wall Street Prep Accounting | Over 170 Essential
Questions with Verified Answers
Liquidity Ratios - CORRECT ANSWER ✅✅✅measures of a firm's short-term
ability to meet its current obligations
Profitability Ratios - CORRECT ANSWER ✅✅✅measures of a firm's profitability
relative to its assets (operating efficiency) and to its revenue (operating profitability)
Activity Ratios - CORRECT ANSWER ✅✅✅Measure of efficiency of a firm's
assets
Solvency Ratios - CORRECT ANSWER ✅✅✅Measure of a firm's ability to pay
its obligations
Inventory Turnover - CORRECT ANSWER ✅✅✅COGS / avg inventory
Receivables Turnover - CORRECT ANSWER ✅✅✅revenue / average accounts
receivable
DSO (Days Sales Outstanding) - CORRECT ANSWER ✅✅✅AR/Credit Sales *
days in period
days in period/receivables turnover
A/P turnover - CORRECT ANSWER ✅✅✅COGS / Average A/P
PPP (payables purchasing period) - CORRECT ANSWER ✅✅✅days in period/
Accounts payable turnover
Current Ratio - CORRECT ANSWER ✅✅✅current assets/current liabilities
Quick ratio (acid test) - CORRECT ANSWER ✅✅✅Cash and AR divided by
current liabilities
Gross profit margin - CORRECT ANSWER ✅✅✅gross profit/revenue
operating margin - CORRECT ANSWER ✅✅✅operating profit/revenue
net profit margin - CORRECT ANSWER ✅✅✅net income/revenue
asset turnover - CORRECT ANSWER ✅✅✅revenue/ average assets
, return on assets (ROA) - CORRECT ANSWER ✅✅✅Net Income / Average
Assets
return on equity (ROE) - CORRECT ANSWER ✅✅✅net income/ total equity
Basic EPS - CORRECT ANSWER ✅✅✅(Net Income - Preferred
Dividends)/(Weighted Average of Shares Outstanding)
Diluted EPS - CORRECT ANSWER ✅✅✅diluted net income / weighted average
diluted shares outstanding
dividend yield - CORRECT ANSWER ✅✅✅dividends/net income
debt to EBITDA - CORRECT ANSWER ✅✅✅Total Debt/EBITDA
interest coverage ratio - CORRECT ANSWER ✅✅✅EBIT/ interest expense
fixed charge coverage - CORRECT ANSWER ✅✅✅(EBIT + Lease
charges)/(Interest Payments + Lease charges)
Debt to Total Assets - CORRECT ANSWER ✅✅✅Total Debt/Total Assets
debt to equity - CORRECT ANSWER ✅✅✅total liabilities/total equity
cash from operations (CFO) - CORRECT ANSWER ✅✅✅uses net income as a
starting point and converts accrual base net income into cash flow from operations
via a series of adjustments
cash from investing activities (CFI) - CORRECT ANSWER ✅✅✅capital
expenditures / asset sales and purchases
cash from financing activities (CFF) - CORRECT ANSWER ✅✅✅new borrowing
/ pay down of debt / new issuance of stock / share repurchases / issuance of
dividends
working capital - CORRECT ANSWER ✅✅✅-CFO
-increase in current assets = cash outflow
-increase in current liabilities = cash inflow
asset write downs / impairments - CORRECT ANSWER ✅✅✅-added back to
CFS via CFO
Increases in A/R, inventory, prepaid expenses, other current assets should be
_____________ net income to get to CFO - CORRECT ANSWER
✅✅✅subtracted
Questions with Verified Answers
Liquidity Ratios - CORRECT ANSWER ✅✅✅measures of a firm's short-term
ability to meet its current obligations
Profitability Ratios - CORRECT ANSWER ✅✅✅measures of a firm's profitability
relative to its assets (operating efficiency) and to its revenue (operating profitability)
Activity Ratios - CORRECT ANSWER ✅✅✅Measure of efficiency of a firm's
assets
Solvency Ratios - CORRECT ANSWER ✅✅✅Measure of a firm's ability to pay
its obligations
Inventory Turnover - CORRECT ANSWER ✅✅✅COGS / avg inventory
Receivables Turnover - CORRECT ANSWER ✅✅✅revenue / average accounts
receivable
DSO (Days Sales Outstanding) - CORRECT ANSWER ✅✅✅AR/Credit Sales *
days in period
days in period/receivables turnover
A/P turnover - CORRECT ANSWER ✅✅✅COGS / Average A/P
PPP (payables purchasing period) - CORRECT ANSWER ✅✅✅days in period/
Accounts payable turnover
Current Ratio - CORRECT ANSWER ✅✅✅current assets/current liabilities
Quick ratio (acid test) - CORRECT ANSWER ✅✅✅Cash and AR divided by
current liabilities
Gross profit margin - CORRECT ANSWER ✅✅✅gross profit/revenue
operating margin - CORRECT ANSWER ✅✅✅operating profit/revenue
net profit margin - CORRECT ANSWER ✅✅✅net income/revenue
asset turnover - CORRECT ANSWER ✅✅✅revenue/ average assets
, return on assets (ROA) - CORRECT ANSWER ✅✅✅Net Income / Average
Assets
return on equity (ROE) - CORRECT ANSWER ✅✅✅net income/ total equity
Basic EPS - CORRECT ANSWER ✅✅✅(Net Income - Preferred
Dividends)/(Weighted Average of Shares Outstanding)
Diluted EPS - CORRECT ANSWER ✅✅✅diluted net income / weighted average
diluted shares outstanding
dividend yield - CORRECT ANSWER ✅✅✅dividends/net income
debt to EBITDA - CORRECT ANSWER ✅✅✅Total Debt/EBITDA
interest coverage ratio - CORRECT ANSWER ✅✅✅EBIT/ interest expense
fixed charge coverage - CORRECT ANSWER ✅✅✅(EBIT + Lease
charges)/(Interest Payments + Lease charges)
Debt to Total Assets - CORRECT ANSWER ✅✅✅Total Debt/Total Assets
debt to equity - CORRECT ANSWER ✅✅✅total liabilities/total equity
cash from operations (CFO) - CORRECT ANSWER ✅✅✅uses net income as a
starting point and converts accrual base net income into cash flow from operations
via a series of adjustments
cash from investing activities (CFI) - CORRECT ANSWER ✅✅✅capital
expenditures / asset sales and purchases
cash from financing activities (CFF) - CORRECT ANSWER ✅✅✅new borrowing
/ pay down of debt / new issuance of stock / share repurchases / issuance of
dividends
working capital - CORRECT ANSWER ✅✅✅-CFO
-increase in current assets = cash outflow
-increase in current liabilities = cash inflow
asset write downs / impairments - CORRECT ANSWER ✅✅✅-added back to
CFS via CFO
Increases in A/R, inventory, prepaid expenses, other current assets should be
_____________ net income to get to CFO - CORRECT ANSWER
✅✅✅subtracted
