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1.
Financial ratios typically provide the most benefit when they are _______.
Compared with other identical ratios. Used comparatively, they can provide information about improvements or troubles at a company.
2.
Company Z has a current ratio of 1.5. This means that _______.
Its current assets should be able to satisfy its short-term obligations. Since current ratio is current assets divided by current liabilities, any ratio over one is a good sign.
3.
What ratio measures a company's return on its investment by shareholders?
Return on equity. The key word here is "equity."
4.
What does accounts receivable turnover measure?
How effective the company's credit policies are. For example, if the ratio is too low, the company may be having trouble collecting what it is owed.
5.
As a rule, the more debt a company has, the riskier its stock is. Why?
Debtholders have first claim to a company's assets in the event of bankruptcy. In bad cases, there may be nothing left for stockholders to claim after a bankruptcy.
