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D076 Module 7 already graded A+ 2024/2025
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D076 Module 7 already graded A+ 2024/2025
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D076 Module 7Which statement below is an example of how ratios are used in the field of finance? - ANSA
firm's ratios are compared with those of a benchmark peer group to determine the firm's relative
strength and performance.
Why are ratios considered flexible? - ANSBecause they are not regulated and can be changed
or invented according to a firm's needs
How might calculating financial ratios help shareholders? - ANSRatios can be used to determine
whether a firm is maximizing shareholder wealth.
The firm Betsy's Books conducts a financial analysis using ratios to know how it is performing in
comparison to other similar firms. What is this process called? - ANSBenchmarking
5 major types of financial ratios - ANSliquidity, activity, leverage, profitability, and market
Liquidity Ratios - ANSmeasure a firms ability to meet short-term obligations
Activity Ratios - ANSmeasure how well a company uses its assets to generate sales or cash
Leverage Ratio - ANSconsider how a firm is financed and how financially risky a firm is
Profitability ratios - ANSare used to directly judge how well management is maximizing
shareholder wealth
Market Ratios - ANSare used to evaluate the current share prices of a public firms stock
A firm has paid off its short-term loans more quickly in the past couple of years. What might this
trend indicate about the firm's financial ratios? - ANSIts liquidity ratio is increasing.
Which type of ratio is a current ratio? - ANSLiquidity
What is the main difference between the current ratio and the quick ratio? - ANSThe current
ratio includes inventory in current assets, and the quick ratio does not.
The firm Betsy's Books has a market-to-book ratio of 1.2. What does this tell you about the firm?
- ANSThis firm is expected to grow in the future.
What does the net margin measure? - ANSThe percent of revenue that is retained as profit for
the firm
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