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    Ratio Analysis Practicing

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    Ahmed Taha
    The document provides examples of multiple choice and problem solving questions related to ratio analysis. The multiple choice questions test understanding of different financial ratios used to measure concepts like profitability, margins, and liquidity. The problem solving questions provide financial ratio data for a company and industry and ask the reader to analyze trends, asset management, and solvency based on the ratios.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Ratio Analysis Practicing

    Uploaded by

    Ahmed Taha
    256 views2 pages
    The document provides examples of multiple choice and problem solving questions related to ratio analysis. The multiple choice questions test understanding of different financial ratios used to measure concepts like profitability, margins, and liquidity. The problem solving questions provide financial ratio data for a company and industry and ask the reader to analyze trends, asset management, and solvency based on the ratios.

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    The document provides examples of multiple choice and problem solving questions related to ratio analysis. The multiple choice questions test understanding of different financial ratios used to measure concepts like profitability, margins, and liquidity. The problem solving questions provide financial ratio data for a company and industry and ask the reader to analyze trends, asset management, and solvency based on the ratios.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    256 views2 pages

    Ratio Analysis Practicing

    Uploaded by

    Ahmed Taha
    The document provides examples of multiple choice and problem solving questions related to ratio analysis. The multiple choice questions test understanding of different financial ratios used to measure concepts like profitability, margins, and liquidity. The problem solving questions provide financial ratio data for a company and industry and ask the reader to analyze trends, asset management, and solvency based on the ratios.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Examples of Questions on Ratio Analysis

    A: Multiple Choice Questions

    1. Which of the following is considered a profitability measure?

    a. Days sales in inventory


    b. Fixed asset turnover
    c. Price-earnings ratio
    d. Cash coverage ratio
    e. Return on Assets

    2. Firm A has a Return on Equity (ROE) equal to 24%, while firm B has an ROE of 15%
    during the same year. Both firms have a total debt ratio (D/V) equal to 0.8. Firm A has
    an asset turnover ratio of 0.9, while firm B has an asset turnover ratio equal to 0.4.
    From this we know that

    a. Firm A has a higher profit margin than firm B


    b. Firm B has a higher profit margin than firm A
    c. Firm A and B have the same profit margin
    d. Firm A has a higher equity multiplier than firm B
    e. You need more information to say anything about the firm's profit margin

    3. If a firm has $100 in inventories, a current ratio equal to 1.2, and a quick ratio equal
    to 1.1, what is the firm's Net Working Capital?

    a. $0
    b. $100
    c. $200
    d. $1,000
    e. $1,200

    4. To measure a firm's solvency as completely as possible, we need to consider

    a. The firm's relative proportion of debt and equity in its capital structure
    b. The firm's capital structure and the liquidity of its current assets
    c. The firm's ability to use Net Working Capital to pay off its current liabilities
    d. The firms leverage and its ability to make interest payments on its long-term debt
    e. The firm leverage and its ability to turn its assets over into sales
    B: Problem Solving Questions

    You have been hired as an analyst for Mellon Bank and your team is working on an
    independent assessment of Daffy Duck Food Inc. (DDF Inc.) DDF Inc. is a firm that
    specializes in the production of freshly imported farm products from France. Your
    assistant has provided you with the following data for Flipper Inc and their industry.

    1999-
    Ratio 1999 1998 1997 Industry
    Average
    Long-term debt 0.45 0.40 0.35 0.35
    Inventory Turnover 62.65 42.42 32.25 53.25
    Depreciation/Total Assets 0.25 0.014 0.018 0.015
    Days sales in receivables 113 98 94 130.25
    Debt to Equity 0.75 0.85 0.90 0.88
    Profit Margin 0.082 0.07 0.06 0.075
    Total Asset Turnover 0.54 0.65 0.70 0.40
    Quick Ratio 1.028 1.03 1.029 1.031
    Current Ratio 1.33 1.21 1.15 1.25
    Times Interest Earned 0.9 4.375 4.45 4.65
    Equity Multiplier 1.75 1.85 1.90 1.88

    a. In the annual report to the shareholders, the CEO of Flipper Inc wrote, 1997 was a
    good year for the firm with respect to our ability to meet our short-term obligations.
    We had higher liquidity largely due to an increase in highly liquid current assets
    (cash, account receivables and short-term marketable securities). Is the CEO
    correct? Explain and use only relevant information in your analysis.

    b. What can you say about the firm's asset management? Be as complete as possible
    given the above information, but do not use any irrelevant information.

    c. You are asked to provide the shareholders with an assessment of the firm's solvency
    and leverage. Be as complete as possible given the above information, but do not use
    any irrelevant information.

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