📘 TOPIC 8: Financial Statement Analysis – Part 2

Question 1

What is the formula for Current Ratio?

Answer 1

Current Ratio = Current Assets / Current Liabilities

The Current Ratio measures a company’s ability to pay short-term obligations.

Question 2

What is the Quick Ratio formula?

Answer 2

Quick Ratio = (Current Assets – Inventory) / Current Liabilities

The Quick Ratio assesses a company’s ability to meet short-term liabilities without relying on inventory sales.

Question 3

How is the Cash Flow Ratio calculated?

Answer 3

Cash Flow Ratio = Cash Flow from Operating Activities / Current Liabilities

This ratio indicates how well a company can cover its current liabilities with cash generated from operations.

Question 4

What does the Debt to Equity Ratio represent?

Answer 4

Debt to Equity Ratio = Total Liabilities / Total Equity × 100

This ratio measures the relative proportion of shareholders’ equity and debt used to finance a company’s assets.

Question 5

How is the Debt Ratio calculated?

Answer 5

Debt Ratio = Total Liabilities / Total Assets × 100

The Debt Ratio indicates the percentage of a company’s assets that are financed by debt.

Question 6

What is the formula for Equity Ratio?

Answer 6

Equity Ratio = Total Equity / Total Assets × 100

This ratio reflects the proportion of a company’s assets that are financed by shareholders’ equity.

Question 7

How is the Interest Coverage Ratio calculated?

Answer 7

Interest Coverage Ratio = EBIT / Net Finance Costs

This ratio measures a company’s ability to pay interest on its outstanding debt.

Question 8

What does Earnings Per Share (EPS) measure?

Answer 8

Earnings Per Share (EPS) = Profit Available to Ordinary Shareholders / Weighted Shares on Issue

EPS indicates the portion of a company’s profit allocated to each outstanding share of common stock.

Question 9

What is the formula for Dividend Per Share (DPS)?

Answer 9

Dividend Per Share (DPS) = Dividends Paid / Weighted Shares on Issue

DPS shows how much a company is paying its shareholders in dividends for each share they own.

Question 10

How is Net Tangible Asset Backing (NTAB) calculated?

Answer 10

Net Tangible Asset Backing (NTAB) = (Equity – Intangibles) / Shares on Issue

NTAB measures the tangible assets available to shareholders per share, excluding intangible assets.

Question 11

What is the Price-Earnings Ratio (PER)?

Answer 11

Price-Earnings Ratio (PER) = Market Price / EPS

The PER indicates how much investors are willing to pay per dollar of earnings, reflecting market expectations of future growth.