Question 1

The asset, the amount of which can be realized within a period of one year are known as ----------------

Accepted Answer

Current assets are assets that are expected to be converted into cash, sold, or consumed within one year or within the operating cycle of the business, whichever is longer. Examples include cash, inventory, and accounts receivable.

Question 2

The ideal current ratio is -------------

Accepted Answer

The ideal current ratio, which measures a company's ability to pay off its short-term liabilities with its short-term assets, is generally considered to be 2:1. This indicates that the company has twice as many current assets as it does current liabilities.

Question 3

The ratio which shows the relationship between borrowed funds and owners capital is ---------------

Accepted Answer

The Debt Equity Ratio shows the relationship between borrowed funds (debt) and the owner's capital (equity), indicating how much of the company is financed by debt compared to its own funds.

Question 4

Proprietary ratio measures the relationship between share holder fund and ------------------

Accepted Answer

Proprietary ratio measures the relationship between shareholder funds and total assets, indicating the proportion of a company's assets that are financed by shareholders' equity.

Question 5

The relationship between total outside liabilities and total assets can be indicated through ------------

Accepted Answer

Solvency ratio measures the ability of a company to meet its long-term obligations. It is calculated by dividing total outside liabilities by total assets.

Question 6

Debt service ratio is also known as --------------

Accepted Answer

The debt service ratio, often referred to as the interest coverage ratio, measures a company's ability to pay its debt obligations with its operating income.

Question 7

Debt equity ratio is an example of ---------------- ratios

Accepted Answer

Debt equity ratio is calculated using balance sheet items (total liabilities and shareholders' equity), making it an example of a balance sheet ratio.

Question 8

Income tax payable come under ------------------

Accepted Answer

Income tax payable is classified as a current liability because it is an obligation that is expected to be settled within the company's normal operating cycle or within a year.

Question 9

Stock and prepaid expanses are not included in ----------------

Accepted Answer

Quick assets exclude inventory and prepaid expenses as they are not readily convertible to cash.

Question 10

In a sound business, acid test ratio ------------------- is considered satisfactory

Accepted Answer

The acid test ratio, also known as the quick ratio, measures a company's ability to pay its current liabilities without relying on the sale of inventory. A ratio of 1:1 is considered satisfactory because it indicates that the company has enough liquid assets to cover its current liabilities.

Question 11

Cost of good sold+operating expanses=-------------------------

Accepted Answer

The answer of Cost of good sold+operating expanses=-------------------------
...

Question 12

Example of activity ratios ------------------------

Accepted Answer

Activity ratios, also known as efficiency ratios or asset management ratios, measure how well a company utilizes its assets. The stock turnover ratio (D) is an example of an activity ratio because it measures how efficiently a company turns its inventory into sales. The other options, gross profit ratio (A), net profit ratio (B), and operating ratio (C), are examples of profitability ratios, which measure a company's ability to generate profit from its operations.

Question 13

Example of leverage ratio

Accepted Answer

Solvency ratio is an example of a leverage ratio because it measures a company's ability to meet its long-term debts and financial obligations. Leverage ratios are financial metrics used to assess a company's use of debt to finance its assets, with the solvency ratio specifically evaluating the long-term sustainability of its capital structure.

Question 14

Current ratio is an example of --------------------

Accepted Answer

The current ratio is an example of a liquidity ratio, which measures a company's ability to meet its short-term obligations with its short-term assets.

Question 15

Stock turn over ratio is an example of -------------------

Accepted Answer

Stock turnover ratio is an example of activity ratios, as it measures how efficiently a company manages its inventory and converts it into sales within a specific period.

Question 16

Ratio analysis is a study of relationship among various --------------- factors in a business

Accepted Answer

Ratio analysis is a study of relationship among various financial factors in a business, as it involves comparing different figures from the balance sheet, income statement, and other financial statements to make judgments about a company's financial health.

Question 17

Liquidity ratios measure the --------- solvency of a firm

Accepted Answer

Liquidity ratios measure a firm's ability to meet its short-term obligations, indicating its short-term financial health.

Question 18

By computing current ratio ---------------- solvency of a concern is assessed

Accepted Answer

The current ratio is a liquidity ratio that measures a company's ability to cover its short-term liabilities with its short-term assets, thus assessing short-term solvency.

Question 19

---------------- ratio studies the firm's ability to meet its long term financial position

Accepted Answer

Leverage ratios study a firm's ability to meet its long-term financial obligations and manage its long-term debt. These ratios provide insights into the financial structure, solvency, and risk level of the company.

Question 20

Satisfactory level of debt equity ratio is --------------------

Accepted Answer

A satisfactory level of debt equity ratio is 2:1. This means that for every $2 of debt, the company has $1 of equity. This ratio is considered to be a good balance between risk and return.

Quiz 3: Ratio Analysis and Financial Metrics in Business