C214 Financial management topic 4
Question and answers already passed
2025/2026
Ratio analysis
for 3 reasons - correct answer ✔1. Standardization
2. Flexibility
3. Focus
4.2 question 1
The ratios used in financial analysis r defined by GAAP - correct answer ✔Answer: False
There are no rules for ratios. You can make your own to meet your needs.
4.2 question 2
Which of the following statements is NOT correct with respect to using ratios to analyze a firm or firms?
- correct answer ✔Answer: A change in a ratios reveals the economic character of the firm.
Using ratios to assess cost structure and creating new ratios to assess cost structure are examples of
"Focus" and "flexibility" in ratio analysis. Using ratios to assess three companies is an example of
"standardization". The incorrect statement is that ratios (and even change in ratios) reveal economic
, character. Ratios do NOT answer questions; rather, they indicate where the analyst should dig deeper to
understand differences or changes.
4.2 question 3
Which one of the following is NOT part of the common ratio categories? - correct answer ✔Answer:
Operating
We discuss 4 ratios in the textbook: Liquidity, Asset Use Efficiency, Financing (Leverage), and
Profitability.
4.2 question 4
Ratios help identify the areas of a firm that need investigation. - correct answer ✔Answer: True
Solution: True. Ratios tell you what questions to ask about the company.
Liquidity ratios
1. current ratio
2. quick ratio
3. AR turnover
4. Avg collection period (ACP)
5. Inventory turnover
6. Days on hand (DOH) - correct answer ✔a firm's ability to meet short term obligations
1. Current ratio - correct answer ✔= Current Assets / Current Liabilities
Question and answers already passed
2025/2026
Ratio analysis
for 3 reasons - correct answer ✔1. Standardization
2. Flexibility
3. Focus
4.2 question 1
The ratios used in financial analysis r defined by GAAP - correct answer ✔Answer: False
There are no rules for ratios. You can make your own to meet your needs.
4.2 question 2
Which of the following statements is NOT correct with respect to using ratios to analyze a firm or firms?
- correct answer ✔Answer: A change in a ratios reveals the economic character of the firm.
Using ratios to assess cost structure and creating new ratios to assess cost structure are examples of
"Focus" and "flexibility" in ratio analysis. Using ratios to assess three companies is an example of
"standardization". The incorrect statement is that ratios (and even change in ratios) reveal economic
, character. Ratios do NOT answer questions; rather, they indicate where the analyst should dig deeper to
understand differences or changes.
4.2 question 3
Which one of the following is NOT part of the common ratio categories? - correct answer ✔Answer:
Operating
We discuss 4 ratios in the textbook: Liquidity, Asset Use Efficiency, Financing (Leverage), and
Profitability.
4.2 question 4
Ratios help identify the areas of a firm that need investigation. - correct answer ✔Answer: True
Solution: True. Ratios tell you what questions to ask about the company.
Liquidity ratios
1. current ratio
2. quick ratio
3. AR turnover
4. Avg collection period (ACP)
5. Inventory turnover
6. Days on hand (DOH) - correct answer ✔a firm's ability to meet short term obligations
1. Current ratio - correct answer ✔= Current Assets / Current Liabilities
