Managerial Finance Exam Questions
with Answers
Ratios that help determine the efficiency with which a company manages its day-to-day tasks
and assets are called - ✔✔asset management ratios
ratios that help determine whether a company can access its cash and pay its short term
obligations - ✔✔liquidity ratios
ratios that help assess a company's ability to service the interest and repayment obligations on
its long-term debt and the degree to which it uses borrowed versus invested financial capital -
✔✔capital management ratios
ratios that examine the market value of a company's share price, its profit and cash dividends,
and the book value of the firm's assets and relate them to the other data items to determine
the how the firm is perceived - ✔✔market value
ratios help measure a company's ability to generate income and profits based on its invested
capital - ✔✔profitability
what are the main purposes of ratio analysis - ✔✔compare with similar companies within the
industry in the market
with the benchmark
with its performance in previous years
In addition to calculating ratios what else can be done - ✔✔make observations and identify
trends that are suggested by the ratio analysis
identify the factors that drive the trends in the ratios
hide the bad ratios and highlight the good ratios
, current ratio - ✔✔current assets/current liabilities
quick ratio - ✔✔(Current Assets - Inventory) / Current Liabilities
lower current ratio means - ✔✔less ability to finance short term liabilities
if a quick ratio is less then 1 - ✔✔that means the company does not have enough assets,
excluding its inventory, to meet its short term obligations
the quick ratio does not take into account the value of - ✔✔inventory
Inventory Turnover - ✔✔Sales/Inventory
days of sales outstanding - ✔✔Receivables/(Annual Sales/365)
low day of sales outstanding means - ✔✔company is efficient
companies that function without the use of borrowed money are said to have no leverage or
are called - ✔✔unleveraged companies
unleveraged companies are financed by - ✔✔equity alone
unleveraged firms are less risky but they might also - ✔✔lose out on opportunities
interest on debt is a - ✔✔tax deductible expense
with Answers
Ratios that help determine the efficiency with which a company manages its day-to-day tasks
and assets are called - ✔✔asset management ratios
ratios that help determine whether a company can access its cash and pay its short term
obligations - ✔✔liquidity ratios
ratios that help assess a company's ability to service the interest and repayment obligations on
its long-term debt and the degree to which it uses borrowed versus invested financial capital -
✔✔capital management ratios
ratios that examine the market value of a company's share price, its profit and cash dividends,
and the book value of the firm's assets and relate them to the other data items to determine
the how the firm is perceived - ✔✔market value
ratios help measure a company's ability to generate income and profits based on its invested
capital - ✔✔profitability
what are the main purposes of ratio analysis - ✔✔compare with similar companies within the
industry in the market
with the benchmark
with its performance in previous years
In addition to calculating ratios what else can be done - ✔✔make observations and identify
trends that are suggested by the ratio analysis
identify the factors that drive the trends in the ratios
hide the bad ratios and highlight the good ratios
, current ratio - ✔✔current assets/current liabilities
quick ratio - ✔✔(Current Assets - Inventory) / Current Liabilities
lower current ratio means - ✔✔less ability to finance short term liabilities
if a quick ratio is less then 1 - ✔✔that means the company does not have enough assets,
excluding its inventory, to meet its short term obligations
the quick ratio does not take into account the value of - ✔✔inventory
Inventory Turnover - ✔✔Sales/Inventory
days of sales outstanding - ✔✔Receivables/(Annual Sales/365)
low day of sales outstanding means - ✔✔company is efficient
companies that function without the use of borrowed money are said to have no leverage or
are called - ✔✔unleveraged companies
unleveraged companies are financed by - ✔✔equity alone
unleveraged firms are less risky but they might also - ✔✔lose out on opportunities
interest on debt is a - ✔✔tax deductible expense
