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Stocks 304: Interpreting the Numbers

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1.
Financial ratios typically provide the most benefit when they are _______.
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Compared with other identical ratios. Used comparatively, they can provide information about improvements or troubles at a company.
2.
Liquidity ratios attempt to measure _______.
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How likely a company will be able to meet its near-term obligations.
3.
When calculating a company's return on assets, which of the following expenses should be added back to the numerator after-tax?
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Interest. Return on assets measures the profitability of a company, regardless of whether its assets are financed by equityholders or debtholders. As such, we add back in what the debtholders are charging the company to borrow money.
4.
A company's debt/equity ratio measures _______.
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How much of the company is financed by its debt holders compared with its equity holders. The higher the ratio, the more debt is being used.
5.
What does accounts receivable turnover measure?
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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.