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 current assets of $500,000, inventory of $150,000, and current liabilities of $200,000. What is the quick ratio?
Answer: 1.75
Quick ratio = (Current Assets − Inventory) / Current Liabilities = ($500,000 − $150,000) / $200,000 = 1.75.
Which of the following best describes the DuPont analysis framework?
Answer: A method to decompose ROE into net profit margin, asset turnover, and equity multiplier
DuPont analysis breaks ROE into three components: net profit margin, asset turnover, and the equity multiplier (financial leverage).
If inventory turnover is 8 times per year, the average days in inventory is approximately:
Answer: 46 days
Days in inventory = 365 / Inventory Turnover = 365 / 8 ≈ 45.6 days.
A company with a high asset turnover ratio but a low net profit margin most likely competes in which type of industry?
Answer: Grocery retail
Grocery retailers typically operate on thin margins but turn over assets rapidly due to high sales volume relative to asset base.
The equity multiplier in DuPont analysis is calculated as:
Answer: Total Assets / Total Equity
The equity multiplier = Total Assets / Total Equity, and it measures financial leverage.
A declining current ratio over multiple periods may indicate:
Answer: Increasing liquidity risk or rising short-term obligations
A falling current ratio suggests either current liabilities are growing faster than current assets, raising potential liquidity concerns.
Which ratio is most useful for comparing profitability across companies with different capital structures?
Answer: Return on assets (ROA)
ROA measures profit relative to total assets regardless of how those assets are financed, making it useful across firms with different debt levels.