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Stocks 304: Interpreting the Numbers

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1.
Company Z has a current ratio of 1.5. This means that _______.
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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.
2.
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.
3.
The amount of each dollar of sales that a company keeps in the form of gross profit is measured by _______.
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Gross margin. It is calculated by dividing gross profit by sales.
4.
A company's leverage refers to how much _______ it has on its balance sheet.
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Debt. Leverage is all about debt.
5.
What does inventory turnover measure?
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How well a company manages its inventory. For example, if inventory turnover is too low, the company may be having problems selling its products.