D076 Module 7 Question and answers
100% correct 2025/2026
Which statement below is an example of how ratios are used in the field of finance? - correct answer
✔A firm's ratios are compared with those of a benchmark peer group to determine the firm's relative
strength and performance.
Why are ratios considered flexible? - correct answer ✔Because they are not regulated and can be
changed or invented according to a firm's needs
How might calculating financial ratios help shareholders? - correct answer ✔Ratios can be used to
determine whether a firm is maximizing shareholder wealth.
The firm Betsy's Books conducts a financial analysis using ratios to know how it is performing in
comparison to other similar firms. What is this process called? - correct answer ✔Benchmarking
5 major types of financial ratios - correct answer ✔liquidity, activity, leverage, profitability, and market
Liquidity Ratios - correct answer ✔measure a firms ability to meet short-term obligations
Activity Ratios - correct answer ✔measure how well a company uses its assets to generate sales or cash
Leverage Ratio - correct answer ✔consider how a firm is financed and how financially risky a firm is
Profitability ratios - correct answer ✔are used to directly judge how well management is maximizing
shareholder wealth
Market Ratios - correct answer ✔are used to evaluate the current share prices of a public firms stock
100% correct 2025/2026
Which statement below is an example of how ratios are used in the field of finance? - correct answer
✔A firm's ratios are compared with those of a benchmark peer group to determine the firm's relative
strength and performance.
Why are ratios considered flexible? - correct answer ✔Because they are not regulated and can be
changed or invented according to a firm's needs
How might calculating financial ratios help shareholders? - correct answer ✔Ratios can be used to
determine whether a firm is maximizing shareholder wealth.
The firm Betsy's Books conducts a financial analysis using ratios to know how it is performing in
comparison to other similar firms. What is this process called? - correct answer ✔Benchmarking
5 major types of financial ratios - correct answer ✔liquidity, activity, leverage, profitability, and market
Liquidity Ratios - correct answer ✔measure a firms ability to meet short-term obligations
Activity Ratios - correct answer ✔measure how well a company uses its assets to generate sales or cash
Leverage Ratio - correct answer ✔consider how a firm is financed and how financially risky a firm is
Profitability ratios - correct answer ✔are used to directly judge how well management is maximizing
shareholder wealth
Market Ratios - correct answer ✔are used to evaluate the current share prices of a public firms stock
