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FIN 701 - Module 1.3 Exam Question with Complete Solutions
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What are the 5 questions you ask when looking at a ratio? - Answer-1. How is the ratio computed? 2. What is the ratio trying to measure and why? 3. What is the unit of measurement? 4. What does the value indicate? 5. How can we improve the company's ratio? What are the five important typ...

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  • August 23, 2024
  • 4
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

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  • fin 701 module 13 exam question with complete s
  • what are the 5 questions you ask when looking at a

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FIN 701 - Module 1.3 Exam Question with
Complete Solutions
What are the 5 questions you ask when looking at a ratio? - Answer-1. How is the ratio
computed?
2. What is the ratio trying to measure and why?
3. What is the unit of measurement?
4. What does the value indicate?
5. How can we improve the company's ratio?

What are the five important types of financial ratios? - Answer-1. Short term solvency or
liquidity
2. Long-term solvency or financial leverage
3. Asset management or turnover
4. Profitability
5. Market value

What are the 3 short-term solvency (liquidity) ratios? - Answer-1. CA/CL = Current Ratio
2. (CA-Inventory)/CL = Quick Ratio
3. Cash/CL = Cash Ratio

What is the equation for Networking Capital? - Answer-CA-CL

A basic solvency value is ? - Answer-Net Working Capital or NWC (Current Assets -
Current Liabilities)

What is the purpose of the Current Ratio? - Answer-Measures how many "times" the
total current liabilities (CL) can be paid using the current assets (CA).

What is the purpose of Quick Ratios? - Answer-A stringent liquidity measure used to
quickly sell inventory. Getting its full value may also be difficult that are due within one
year (current liabilities) be paid using only the firm's cash (and cash equivalents)

What are the 3 Long Term Solvency (Leverage) Ratios? - Answer-1. (TA-TE) / TA =
Total Debt Ratio
2. TD / TE = Debt/Equity
3. TA/TE = Equity Multiplier

Define the Total Debt Ratio. - Answer-The total assets minus total equity divided by total
assets. This value is a percentage and tells us what percent of the total assets are
funded by debt.

What does the debt to equity ratio indicate? - Answer-This indicates the ratio of debt to
the book value of common equity.

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