Accounting Financial Ratios Flashcards
7 cards from real Accounting Online Program practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Accounting Financial Ratios flashcards as text
A company has net income of $150,000 and average shareholders' equity of $750,000. What is the Return on Equity (ROE)?
Answer: 20%
ROE = Net Income / Average Shareholders' Equity = $150,000 / $750,000 = 20%.
Which ratio measures how efficiently a company collects its accounts receivable?
Answer: Accounts receivable turnover ratio
The accounts receivable turnover ratio measures how many times per period a company collects its average accounts receivable balance.
If a firm's debt-to-equity ratio is 2.0, what does this indicate?
Answer: The company has twice as much debt as equity
A debt-to-equity ratio of 2.0 means the company has $2 of debt for every $1 of equity.
A company reports EBIT of $200,000 and interest expense of $40,000. What is its interest coverage ratio?
Answer: 5.0
Interest coverage ratio = EBIT / Interest Expense = $200,000 / $40,000 = 5.0.
Which profitability ratio is calculated as (Gross Profit / Net Sales) × 100?
Answer: Gross profit margin
The gross profit margin measures the percentage of sales revenue remaining after deducting the cost of goods sold.
The Price-to-Earnings (P/E) ratio is best used to evaluate:
Answer: How much investors pay per dollar of earnings
The P/E ratio reflects the market price per share divided by earnings per share, showing investor valuation relative to earnings.
Days Sales Outstanding (DSO) of 45 days compared to an industry average of 30 days suggests:
Answer: The company may have collection issues or lenient credit terms
A higher DSO than the industry average indicates slower collection of receivables, which may signal credit or collection problems.