49) To analyze his firm’s health, the CEO of Epixore Software tries to determine how quickly the
firm’s current assets can be turned into cash to cover short-term liabilities. He then subtracts the
firm’s inventory from the list of current assets to determine if the remaining assets alone could
cover short-term liabilities. In the context of ratio analysis, the CEO of Epixore Software is trying
to determine his firm’s ________ ratio.
A) leverage
B) profitability
C) activity
D) liquidity
50) ________ measure the efficiency with which an entrepreneur can handle his or her business’s
resources.
A) Profitability ratios
B) Leverage ratios
C) Inventory ratios
D) Activity ratios
51) ________ is a metric that examines how fast a company turns credit sales into cash.
A) Inventory control turnover
B) Account receivable turnover
C) Total asset turnover
D) Fixed asset turnover
52) In the context of ratio analysis, the quick ratio measures
A) the current assets of a firm, excluding its current inventory, relative to its current liabilities.
B) the total assets of a firm, including equity investments and accounts receivable.
C) the cash that can be quickly gained by selling a firm’s current inventory at hugely discounted
rates.
D) the overall profits of a firm measured across a fixed period of time.
53) ________ are used to measure the level of indebtedness of a small business.
A) Profitability ratios
B) Activity ratios
C) Leverage ratios
D) Financial ratios
54) The ________ ratio provides information on the portion of a business owned by the lenders
and the portion owned by the founders.
A) debt-to-equity
B) debt-to-assets
C) times-interest-earned
D) equity-to-profit
55) The ________ ratio measures the percentage of the assets of a firm that are owned by the
creditors.
A) debt-to-equity
B) debt-to-assets
C) times-interest-earned
D) equity-to-profit
56) The ________ ratio estimates the number of times that a business could repay the current
interest owed on its debt.
A) debt-to-equity
B) debt-to-interest
C) times-interest-earned
D) times-debt-earned
57) ________ examine the performance of a business and its ability to make economic returns over
and above its costs.
A) Financial ratios
B) Activity ratios
C) Leverage ratios
D) Profitability ratios
58) The ________ ratio measures the overall profits that are obtained from all sales during a given
period.
A) gross profit margin
B) operating profit margin
C) net profit margin
D) return on equity
59) Which of the following figures is also known as Earnings before Interest and Taxes (EBIT)?
A) Gross profit margin
B) Operating profit margin
C) Net profit margin
D) Return to equity
60) The ________ figure presents a picture of the relative margin after all obligations and expenses
are considered.
A) gross profit margin
B) operating profit margin
C) net profit margin
D) return on equity
61) The ________ ratio examines the ability of a firm to return an overall profit compared to the
amount of assets that has been invested into the effort.
A) return on debt
B) return on profit
C) return on assets
D) return on equity
62) Dennis’s stockholders want him to constantly improve his firm’s ________ ratio because it
would improve the future value of their investment in the firm.
A) return on total assets
B) profit margin on sales
C) return on equity
D) fixed asset turnover
63) In the context of leverage ratios, the figure that estimates how capable a firm is of servicing the
current interest owed on its debts is referred to as ________.
A) accounts payable
B) debt-to-assets
C) debt-to-equity
D) times interest earned
64) The investors of Intra Dynamix request an evaluation of its profitability. The firm’s managers
provide them with an evaluation of the profit the firm is generating, focusing on how much each
dollar invested in the firm is generating in profit. In the context of profitability ratios, the managers
of Intra Dynamix are evaluating the firm’s ________.
A) return on assets
B) net profit margin
C) return on equity
D) gross profit margin
65) Identify a true statement about ratio analysis.
A) Entrepreneurs must evaluate their firms on all ratio analysis figures to gain a proper
understanding of their firms’ operational health.
B) A ratio analysis only provides insight into a firm’s health when compared over time or to the
ratios of other firms.
C) While they are valuable tools, ratio analysis is ultimately less useful than nonfinancial data
analysis methods.
D) Because of the large amounts of financial data it requires, a ratio analysis cannot be performed
by relatively new entrepreneurial firms.
66) A ________ analysis is a chart that tracks various performance measures from one time period
to the next.
A) deviation
B) sensitivity
C) leverage
D) financial
67) In the context of measuring the performance of a business, identify a true statement about
deviation analysis.
A) Deviation analysis analyzes the performance of the company in terms of the expectations of its
customers.
B) Effective deviation analysis requires the performance of a business to be contrasted against a
competitor’s performance across the same time frame.
C) To gain the greatest possible insight on a business, deviation analysis must be performed on its
performance at frequent intervals.
D) Profit margins are considered the most important metric in a deviation analysis.
68) Which of the following statements about deviation analysis is NOT correct?
A) A deviation analysis chart should be maintained at least monthly.
B) Any drops in a factor that is being charted should be cause for alarm.
C) Deviation analysis quickly shows the performance on factors deemed important by a business
owner.
D) None of these
69) A ________ analysis involves using a current cash flow statement, income statement, or
balance sheet to create a pro forma projection of a dramatic increase or decrease in sales or a major
complication that might be experienced by a business.
A) deviation
B) sensitivity
C) leverage
D) financial
70) Sensitivity analysis is one of the methods for examining the ability of an organization to handle
changes in the future. Which financial statement is required for this type of analysis?
A) A balance sheet
B) An income statement
C) A current cash flow statement
D) All of these
71) In the context of analyzing the health, activities, and performance of a business, which of the
following is a nonfinancial method of analysis?
A) Dividend discount model
B) Horizontal analysis
C) Short surveys
D) Ratio analysis
72) The management at Invive Soap Company wishes to improve its understanding of how
customers view the company’s products. It selects an analysis method where it asks five questions
to a randomly chosen group of customers. The questions test how the customers feel about the
variety and quality of products offered by the company. In the context of measuring company
performance, the management at Invive Soap Company is using
A) short surveys.
B) hypothesis-driven testing.
C) deviation analysis.
D) ratio analysis.
73) Which of the following statements about having a measurement focus is correct?
A) Concentrate the analysis efforts on areas that are ordinary.
B) Concentrate the analysis efforts on areas that are unique.
C) Focus on unorthodox factors.
D) Focus on orthodox factors.
74) Any company analysis should proceed from the ________ and move toward the ________.
75) A ________ is the evaluation of a series of ratios along four categories of company
performance (liquidity, activity, leverage, and profitability) that provides a picture of the health of
a company.
76) The quick ratio is also known as the ________ test.
77) ________ ratios are used to examine the relative level of indebtedness of the entrepreneurial
business.
78) ________ profit is created by taking the total net sales of a firm and subtracting returned
merchandise as well as the direct cost of goods.
79) ________ profit is the bottom-line calculation from the income statement.
80) A ________ analysis allows an owner to quickly evaluate the performance of the organization
on those items that the individual considers most important to the success of the firm.
81) A ________ analysis allows a small business owner to look at how the business would react to
various factors such as a dramatic increase or decrease in sales.
82) There will always be ________ in surveys because only those individuals who wish to fill out
the survey will do so.
83) To obtain accurate and useful data from surveys, questions should be ________.
84) Explain why a small business owner must monitor the performance of the firm. What changes
could impact the performance of an existing business?
85) What are the four questions that a financial analysis should answer?
86) List and describe the four classic techniques for financial analysis.
87) Define liquidity ratios and detail two specific types.
88) List and define the five profitability ratios.
89) Describe the importance of surveys to a small business owner.