D076 Pre-Assessment QUESTION AND
ANSWER VERIFIED
Which principle of ratio analysis means that ratios are open for analyst interpretation, are not governed
by rules, and allow creativity to work according to a particular company or asset? - ✔✔✔Flexibility
Comparing a firm's ratios across time. - ✔✔✔Trend Analysis
Comparing a firm's financial ratios to other firms' ratios or industry averages. - ✔✔✔Cross-sectional
Analysis
As an active investor, Maria is analyzing her portfolio to decide if there are any stocks she should
remove from her pool of financial securities. A company she has invested in, Quiet Flag Industries, just
released its annual report.
Which kind of method should Maria use to see if the company has improved? - ✔✔✔Trend analysis
An investment analyst is concerned about a construction company's ability to sell its inventory to meet
current obligations, because much of the inventory (commercial buildings) it builds and sells takes
longer than a year to construct.
Which ratio should this analyst use to consider the effect of the firm's inventory on the firm's ability to
meet current obligations? - ✔✔✔Quick ratio
Why are ratios considered flexible? - ✔✔✔Because they are not regulated and can be changed or
invented according to a firm's needs
Which statement below is an example of how ratios are used in the field of finance? - ✔✔✔A firm's
ratios are compared with those of a benchmark peer group to determine the firm's relative strength and
performance.
, How might calculating financial ratios help shareholders? - ✔✔✔Ratios can be used to determine
whether a firm is maximizing shareholder wealth.
The firm Betsy's Books conducts a financial analysis using ratios to know how it is performing in
comparison to other similar firms. What is this process called? - ✔✔✔Benchmarking
measure a firm's ability to meet short-term obligations without raising external capital. - ✔✔✔
Liquidity ratios
(also called efficiency ratios) measure how well the company uses its assets to generate sales or cash—
the firm's operational efficiency and profitability. - ✔✔✔Activity ratios
consider how the firm is financed. - ✔✔✔Leverage ratios
Which action will increase the return on equity of a firm? - ✔✔✔Increasing the asset usage efficiency
of the firm
Which type of ratio should be used to examine the cost efficiency of a firm's production? - ✔✔✔
Profitability
They are commonly used to directly judge how profitable the company is and how well management is
doing as they strive to maximize owner wealth. - ✔✔✔Profitability ratios
are used to evaluate the current share price of a public firm's stock. - ✔✔✔Market ratios
What type of ratio is used to assess a firm's ability to meet short-term obligations without raising
external capital? - ✔✔✔Liquidity ratios
ANSWER VERIFIED
Which principle of ratio analysis means that ratios are open for analyst interpretation, are not governed
by rules, and allow creativity to work according to a particular company or asset? - ✔✔✔Flexibility
Comparing a firm's ratios across time. - ✔✔✔Trend Analysis
Comparing a firm's financial ratios to other firms' ratios or industry averages. - ✔✔✔Cross-sectional
Analysis
As an active investor, Maria is analyzing her portfolio to decide if there are any stocks she should
remove from her pool of financial securities. A company she has invested in, Quiet Flag Industries, just
released its annual report.
Which kind of method should Maria use to see if the company has improved? - ✔✔✔Trend analysis
An investment analyst is concerned about a construction company's ability to sell its inventory to meet
current obligations, because much of the inventory (commercial buildings) it builds and sells takes
longer than a year to construct.
Which ratio should this analyst use to consider the effect of the firm's inventory on the firm's ability to
meet current obligations? - ✔✔✔Quick ratio
Why are ratios considered flexible? - ✔✔✔Because they are not regulated and can be changed or
invented according to a firm's needs
Which statement below is an example of how ratios are used in the field of finance? - ✔✔✔A firm's
ratios are compared with those of a benchmark peer group to determine the firm's relative strength and
performance.
, How might calculating financial ratios help shareholders? - ✔✔✔Ratios can be used to determine
whether a firm is maximizing shareholder wealth.
The firm Betsy's Books conducts a financial analysis using ratios to know how it is performing in
comparison to other similar firms. What is this process called? - ✔✔✔Benchmarking
measure a firm's ability to meet short-term obligations without raising external capital. - ✔✔✔
Liquidity ratios
(also called efficiency ratios) measure how well the company uses its assets to generate sales or cash—
the firm's operational efficiency and profitability. - ✔✔✔Activity ratios
consider how the firm is financed. - ✔✔✔Leverage ratios
Which action will increase the return on equity of a firm? - ✔✔✔Increasing the asset usage efficiency
of the firm
Which type of ratio should be used to examine the cost efficiency of a firm's production? - ✔✔✔
Profitability
They are commonly used to directly judge how profitable the company is and how well management is
doing as they strive to maximize owner wealth. - ✔✔✔Profitability ratios
are used to evaluate the current share price of a public firm's stock. - ✔✔✔Market ratios
What type of ratio is used to assess a firm's ability to meet short-term obligations without raising
external capital? - ✔✔✔Liquidity ratios
