financial metrics Flashcards
(26 cards)
What is the formula for calculating the current ratio?
Current Ratio = Current Assets / Current Liabilities
True or False: A higher current ratio indicates better short-term financial health.
True
Fill in the blank: The __________ measures a company’s ability to pay its long-term debts.
debt-to-equity ratio
What does ROE stand for in financial metrics?
Return on Equity
What is the primary purpose of the Price-to-Earnings (P/E) ratio?
To assess a company’s valuation relative to its earnings.
Which of the following is a measure of profitability? A) Current Ratio B) Gross Margin C) Debt Ratio
B) Gross Margin
True or False: Net Profit Margin is calculated by dividing Net Income by Revenue.
True
What financial metric indicates how efficiently a company uses its assets to generate earnings?
Return on Assets (ROA)
Fill in the blank: The __________ ratio indicates the proportion of debt a company is using to finance its assets.
debt ratio
What does EBITDA stand for?
Earnings Before Interest, Taxes, Depreciation, and Amortization
Which metric is used to evaluate the performance of a company’s core business operations?
Operating Income
True or False: A high P/E ratio always indicates a good investment opportunity.
False
What is the formula for calculating the quick ratio?
Quick Ratio = (Current Assets - Inventories) / Current Liabilities
Name one limitation of using the P/E ratio for valuation.
It does not account for growth rates or future earnings potential.
Which financial metric is used to assess the liquidity of a company’s assets?
Current Ratio
Fill in the blank: The __________ measures how much profit a company makes for each dollar of revenue.
Net Profit Margin
What does the term ‘leverage’ refer to in finance?
The use of borrowed funds to increase the potential return on investment.
True or False: A lower debt-to-equity ratio indicates a company is less leveraged.
True
What is the formula for calculating Return on Investment (ROI)?
ROI = (Net Profit / Cost of Investment) x 100
Which metric is typically used to measure a company’s profitability relative to its shareholder equity?
Return on Equity (ROE)
Fill in the blank: The __________ ratio is used to determine the proportion of a company’s earnings that are paid out as dividends.
dividend payout
What does the term ‘working capital’ refer to?
Current Assets - Current Liabilities
True or False: A company with a high gross margin is typically more efficient at converting sales into actual profit.
True
What is the significance of the debt-to-equity ratio?
It indicates the relative proportion of shareholders’ equity and debt used to finance a company’s assets.
