Question 1

List and interpret three liquidity ratios.

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Question 2

Without making reference to its formula, provide a definition of return on assets.

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Question 3

Without making reference to its formula, provide a definition of average collection period.

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Question 4

What is a more meaningful measure of profitability for a firm, return on assets or return on equity? Why?

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Question 5

Without making reference to its formula, provide a definition of fixed asset turnover.

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Question 6

Explain the value provided by the Du Pont identity that is not provided by just knowing the return on equity percentage.

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Question 7

It is often said that anyone with a pencil can calculate financial ratios, but it takes a brain to interpret them. What kinds of things should the analyst keep in mind when evaluating the financial statements of a given firm?

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Question 8

A firm has days' sales in inventory of 105 days, an average collection period of 35 days, and takes 42 days, on average, to pay its accounts payable. Taken together, what do these three figures imply about the firm's operations and its cash flows?

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Quiz 3: Working With Financial Statements

List and interpret three liquidity ratios.

Without making reference to its formula, provide a definition of return on assets.

Without making reference to its formula, provide a definition of average collection period.

What is a more meaningful measure of profitability for a firm, return on assets or return on equity? Why?

Without making reference to its formula, provide a definition of fixed asset turnover.

Explain the value provided by the Du Pont identity that is not provided by just knowing the return on equity percentage.

It is often said that anyone with a pencil can calculate financial ratios, but it takes a brain to interpret them. What kinds of things should the analyst keep in mind when evaluating the financial statements of a given firm?

A firm has days' sales in inventory of 105 days, an average collection period of 35 days, and takes 42 days, on average, to pay its accounts payable. Taken together, what do these three figures imply about the firm's operations and its cash flows?