Madero Module 4

Other name for Quick Ratio

Acid Test Ratio

Signifies the firm's capacity to meet its current financial obligations using its current assets

Current Ratio

Example of Ratio that gauges or measures liquidity

Current Ratio/ Quick Ratio/ Current Assets to total Assets/ Each current assets item to total current assets

Example of ratio used to gauge efficiency in the use of its debts

Debt to Equity Ratio / Equity to Debt Ratio / Equity Ratio/ Debt Ratio

Financial ratios alone without any interpretation will enable managers to make decisions

False

Financial ratios made from audited financial statements are not reliable.

False

Is a a quantitative method of gaining insight into a company's liquidity , operational efficiency, and profitability by studying its financial statements such as statement of financial position, income statement, and cash flow statement

Financial Ratio Analysis

Are relationships determined to a company's financial information and used for comparison purposes.

Financial Ratios

Example of documents used in computing financial ratios

Financial Statements

Example of ratio used to gauge the firm's profitability and return to owners

Gross Profit Ratio Net Profit Ratio Earnings per Share

What are the main categories/classification of financial ratios

Liquidity Profitability Use of Debts Use of Assets

Classification of ratios used to gauge the capacity of the firm to meet its current financial obligation

Liquidity Ratio

Classification of ratios used to gauge the capacity of the firm to generate returns from the use of its resources.

Profitability / Profitability and Return to Owners

Signifies the firm's capacity to meet its current financial obligations using its quick assets

Quick Ratio

Example of ratio used to gauge the firm's efficiency in the use of its assets.

Receivable Turnover/ Average Collection Period / Merchandise Turnover

What are the documents needed in the computation of Financial Ratios

Statement of Financial Position Income Statement

Financial Ratios can probe firms liquidity, profitability, use of assets and use of debts.

True

Financial statements are needed in the analysis of financial ratios

True

Liquidity ratios can detect whether the firm is able to pay its current financial obligations using its current assets.

True

Profitability ratios can measure the ability of the firm to generate income to cover for expenses.

True

The result of your ratio computation is more meaningful compared with the firms standard

True