Western Governors University
LANIF · 577D
★ ★
WGU College of Business
EST. 1997
A NEW KIND OF U. — CHANGING LIVES THROUGH OPPORTUNITY
WGU D775 — Final Examination
F I N A N C I A L RAT I O S
INSTITUTION Western Governors University COURSE CODE D775
PROGRAM Bachelor of Science — Business ACADEMIC YEAR
Administration
EXAM TITLE Final Examination — Financial TOTAL QUESTIONS 25 Questions
Ratios
COURSE TITLE Introduction to Business Finance FORMAT Multiple Choice — Select the
Single Best Answer
EXAMINATION INSTRUCTIONS
▸ Select the single best answer for each question.
▸ This exam covers the five categories of financial ratios: liquidity, activity, profitability, leverage, and
market ratios.
▸ Formula knowledge, interpretation, and conceptual understanding are all testable.
▸ Correct answers and academic rationales appear below each question for review purposes.
, SECTION I — FINANCIAL RATIOS: CATEGORIES,
Questions 1 – 25
FORMULAS & INTERPRETATION
1. Which category of financial ratios measures a company's ability to meet short-term
obligations using its current assets?
A. Activity ratios
B. Leverage ratios
C. Liquidity ratios
D. Market ratios
CORRECT ANSWER C — Liquidity ratios
RATIONALE Liquidity ratios assess the firm's capacity to meet obligations coming due in the
near term (typically within one year) using assets that are expected to convert to
cash within that same period. The current ratio, quick ratio, and cash ratio form
the core liquidity measurement toolkit. These ratios address the fundamental
survival question: can the company pay its bills on time?
2. Activity ratios are concerned with which aspect of a company's operations?
A. How efficiently the firm uses its assets to generate revenue or cash
B. The firm's stock price relative to its earnings
C. The proportion of debt used to finance operations
D. The firm's ability to pay interest on outstanding debt
CORRECT ANSWER A — How efficiently the firm uses its assets to generate revenue or cash
RATIONALE Activity ratios (also called efficiency or asset utilization ratios) measure how
effectively management deploys the company's asset base. Total asset turnover,
fixed asset turnover, inventory turnover, and accounts receivable turnover are all
activity ratios. They answer the question: "Are we using our resources
productively?" Higher turnover generally indicates greater efficiency, though
benchmarks vary by industry.
LANIF · 577D
★ ★
WGU College of Business
EST. 1997
A NEW KIND OF U. — CHANGING LIVES THROUGH OPPORTUNITY
WGU D775 — Final Examination
F I N A N C I A L RAT I O S
INSTITUTION Western Governors University COURSE CODE D775
PROGRAM Bachelor of Science — Business ACADEMIC YEAR
Administration
EXAM TITLE Final Examination — Financial TOTAL QUESTIONS 25 Questions
Ratios
COURSE TITLE Introduction to Business Finance FORMAT Multiple Choice — Select the
Single Best Answer
EXAMINATION INSTRUCTIONS
▸ Select the single best answer for each question.
▸ This exam covers the five categories of financial ratios: liquidity, activity, profitability, leverage, and
market ratios.
▸ Formula knowledge, interpretation, and conceptual understanding are all testable.
▸ Correct answers and academic rationales appear below each question for review purposes.
, SECTION I — FINANCIAL RATIOS: CATEGORIES,
Questions 1 – 25
FORMULAS & INTERPRETATION
1. Which category of financial ratios measures a company's ability to meet short-term
obligations using its current assets?
A. Activity ratios
B. Leverage ratios
C. Liquidity ratios
D. Market ratios
CORRECT ANSWER C — Liquidity ratios
RATIONALE Liquidity ratios assess the firm's capacity to meet obligations coming due in the
near term (typically within one year) using assets that are expected to convert to
cash within that same period. The current ratio, quick ratio, and cash ratio form
the core liquidity measurement toolkit. These ratios address the fundamental
survival question: can the company pay its bills on time?
2. Activity ratios are concerned with which aspect of a company's operations?
A. How efficiently the firm uses its assets to generate revenue or cash
B. The firm's stock price relative to its earnings
C. The proportion of debt used to finance operations
D. The firm's ability to pay interest on outstanding debt
CORRECT ANSWER A — How efficiently the firm uses its assets to generate revenue or cash
RATIONALE Activity ratios (also called efficiency or asset utilization ratios) measure how
effectively management deploys the company's asset base. Total asset turnover,
fixed asset turnover, inventory turnover, and accounts receivable turnover are all
activity ratios. They answer the question: "Are we using our resources
productively?" Higher turnover generally indicates greater efficiency, though
benchmarks vary by industry.
