Financial Analysis Techniques

Question 1

What do activity ratios indicate?

Answer 1

How well a firm uses its assets.

Question 2

What are seven examples of activity ratios?

Answer 2

1. Receivables turnover,
2. days of sales outstanding,
3. inventory turnover,
4. days of inventory on hand,
5. payables turnover,
6. payables payment period, and
7. turnover ratios for total assets, fixed assets, and working capital.

Question 3

What do liquidity ratios indicate?

Answer 3

A firm’s ability to meet its short-term obligations.

Question 4

What are five examples of liquidity ratios?

Answer 4

1. Current ratio
2. quick ratio
3. cash ratios
4. defensive interval ratio
5. cash conversion cycle.

Question 5

what do solvency ratios measure?

Answer 5

A firm’s ability to meet its long-term obligations.

Question 6

What are six examples of solvency ratios?

Answer 6

1. debt-to-equity,
2. debt-to-capital,
3. debt-to-assets,
4. financial leverage,
5. interest coverage, and
6. fixed charge coverage ratios.

Question 7

What do profitability ratios measure?

Answer 7

How well a firm generates operating income and net income.

Question 8

What are seven profitability ratios?

Answer 8

1. Net, gross, and operating profit margins,
2. pretax margin,
3. return on assets,
4. operating return on assets,
5. return on total capital,
6. return on total equity, and
7. return on common equity.

Question 9

What do valuation ratio meaure?

Answer 9

The relative values of stocks.

Question 10

What are five examples of valuation ratios?

Answer 10

1. earnings per share
2. price-to-earnings,
3. price-to-sales,
4. price-to-book value, and
5. price-to-cash-flow ratios.

Question 11

What is the basic DuPont equation?

Answer 11

ROE=

Question 12

What is the extended DuPont equation?

Answer 12

ROE=