FIN2601 - Chapter 3) Introduction to ratios
1. With increased debt comes greater risk, as well as higher potential reward.
Therefore, the greater the financial ___________, the greater the potential
risk and reward.: leverage
2. 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.: leverage
3. Which ratio measures the proportion of total assets financed by the firms
creditors?: Debt ratio
4. Which ratio is: Total liabilities/Total assets: Debt ratio
5. Assets = 300,000 Liabilities = 180,000 What is owners equity?: 120,000
6. Owners Equity = 50,000 Liabilities = 180,000 What is the Total Assets?:
230,000
7. What does EBIT stand for?: Earnings before Interest and Tax
8. What does FLM stand for?: Financial Leverage Multiplier
9. What does ROA stand for?: Return on Assets
10. What does ROE stand for?: Return on Equity
11. When you see the word margin in a ratio, what is always the
denominator?: Sales
12. What ratio is this: Assets/Equity: Financial Leverage Multiplier
13. Sales - CoS =: Gross profit Margin
14. What does EPS stand for?: Earnings Per Share
15. 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?: Net Profit Margin (NPM)
16. Profit for the year - Preference share dividend/ sales =: Net Profit Margin
(NPM)
17. What does TAT stand for?: Total Asset Turnover
18. The ________________________ indicates the efficiency with which the
firms uses its assets to generate sales: Total Asset Turnover
19. _________________ measures the overall effectiveness of management in
generating profits with its available assets: Return on Assets
20. Current assets/current liabilities =: Current ratio
21. Current assets = 1,223,000 Current liabilities = 620,000. What is the current
ratio?: 1.97
22. Which ratio measures the firms ability to meet its short term obligations?:
Current ratio
23. Current assets - Inventory/ Current Liabilities =: Quick Ratio (AKA acid test)
1. With increased debt comes greater risk, as well as higher potential reward.
Therefore, the greater the financial ___________, the greater the potential
risk and reward.: leverage
2. 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.: leverage
3. Which ratio measures the proportion of total assets financed by the firms
creditors?: Debt ratio
4. Which ratio is: Total liabilities/Total assets: Debt ratio
5. Assets = 300,000 Liabilities = 180,000 What is owners equity?: 120,000
6. Owners Equity = 50,000 Liabilities = 180,000 What is the Total Assets?:
230,000
7. What does EBIT stand for?: Earnings before Interest and Tax
8. What does FLM stand for?: Financial Leverage Multiplier
9. What does ROA stand for?: Return on Assets
10. What does ROE stand for?: Return on Equity
11. When you see the word margin in a ratio, what is always the
denominator?: Sales
12. What ratio is this: Assets/Equity: Financial Leverage Multiplier
13. Sales - CoS =: Gross profit Margin
14. What does EPS stand for?: Earnings Per Share
15. 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?: Net Profit Margin (NPM)
16. Profit for the year - Preference share dividend/ sales =: Net Profit Margin
(NPM)
17. What does TAT stand for?: Total Asset Turnover
18. The ________________________ indicates the efficiency with which the
firms uses its assets to generate sales: Total Asset Turnover
19. _________________ measures the overall effectiveness of management in
generating profits with its available assets: Return on Assets
20. Current assets/current liabilities =: Current ratio
21. Current assets = 1,223,000 Current liabilities = 620,000. What is the current
ratio?: 1.97
22. Which ratio measures the firms ability to meet its short term obligations?:
Current ratio
23. Current assets - Inventory/ Current Liabilities =: Quick Ratio (AKA acid test)
