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1.
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.
2.
What is the best way to use financial ratios?
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.
3.
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.
4.
What ratio measures a company's return on its investment by shareholders?
Return on equity. The key word here is "equity."
5.
What does inventory turnover measure?
How well a company manages its inventory. For example, if inventory turnover is too low, the company may be having problems selling its products.
