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Stocks 304: Interpreting the Numbers

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1.
What is the best way to use financial ratios?
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Both of the above. Looked at by themselves, many financial ratios don't tell much. The best way to use them is to compare them with similar companies and to compare them for the same company over time to identify trends.
2.
A company's leverage refers to how much _______ it has on its balance sheet.
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Debt. Leverage is all about debt.
3.
What ratio measures a company's return on its investment by shareholders?
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Return on equity. The key word here is "equity."
4.
Efficiency ratios measure _______.
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How effectively a company manages its assets and liabilities. Inventory turnover, for example, measures how well a company manages its inventory.
5.
Which ratio simply measures the ability of a company's cash and any investments that are easily converted into cash to pay its short-term obligations?
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Cash ratio. Cash ratio is the most conservative of the liquidity ratios.