Financial Ratios MCQs
Which ratio measures a company’s ability to meet short-term obligations?
A) Debt to Equity Ratio
B) Current Ratio
C) Return on Equity
D) Gross Profit Margin
Answer: B) Current Ratio
The formula for the Quick Ratio is:
A) (Current Assets – Inventory) / Current Liabilities
B) Current Assets / Current Liabilities
C) (Net Income + Depreciation) / Total Assets
D) Total Debt / Equity
Answer: A) (Current Assets – Inventory) / Current Liabilities
Which ratio indicates how effectively a company is using its assets to generate sales?
A) Return on Assets
B) Asset Turnover Ratio
C) Return on Equity
D) Debt to Equity Ratio
Answer: B) Asset Turnover Ratio
The formula for the Debt to Equity Ratio is:
A) Total Liabilities / Total Assets
B) Total Debt / Total Equity
C) Net Income / Total Equity
D) Current Liabilities / Current Assets
Answer: B) Total Debt / Total Equity
Which ratio measures the proportion of profit a company retains after paying dividends?
A) Dividend Yield
B) Dividend Payout Ratio
C) Retained Earnings Ratio
D) Earnings Per Share
Answer: C) Retained Earnings Ratio
The Return on Equity (ROE) is calculated as:
A) Net Income / Total Assets
B) Net Income / Total Equity
C) Operating Income / Net Sales
D) Gross Profit / Net Sales
Answer: B) Net Income / Total Equity
Which ratio measures the profitability of a company relative to its revenue?
A) Return on Assets
B) Net Profit Margin
C) Gross Profit Margin
D) Operating Profit Margin
Answer: B) Net Profit Margin
The formula for the Gross Profit Margin is:
A) Gross Profit / Net Sales
B) Net Income / Net Sales
C) Operating Profit / Net Sales
D) Gross Profit / Total Assets
Answer: A) Gross Profit / Net Sales
Which ratio indicates how well a company manages its inventory?
A) Inventory Turnover Ratio
B) Asset Turnover Ratio
C) Current Ratio
D) Quick Ratio
Answer: A) Inventory Turnover Ratio
The formula for the Return on Assets (ROA) is:
A) Net Income / Total Assets
B) Net Income / Total Equity
C) Gross Profit / Total Assets
D) Operating Income / Net Sales
Answer: A) Net Income / Total Assets
Which ratio measures the ability of a company to generate profit from its assets?
A) Return on Assets
B) Return on Equity
C) Gross Profit Margin
D) Operating Profit Margin
Answer: A) Return on Assets
The formula for the Price to Earnings (P/E) Ratio is:
A) Market Price per Share / Earnings per Share
B) Earnings per Share / Market Price per Share
C) Market Price per Share / Book Value per Share
D) Net Income / Market Price per Share
Answer: A) Market Price per Share / Earnings per Share
Which ratio measures the efficiency of a company in collecting receivables?
A) Receivables Turnover Ratio
B) Inventory Turnover Ratio
C) Asset Turnover Ratio
D) Debt to Equity Ratio
Answer: A) Receivables Turnover Ratio
The formula for the Dividend Yield is:
A) Dividends per Share / Market Price per Share
B) Earnings per Share / Market Price per Share
C) Dividends per Share / Earnings per Share
D) Market Price per Share / Dividends per Share
Answer: A) Dividends per Share / Market Price per Share
Which ratio reflects the percentage of sales that turns into net income?
A) Gross Profit Margin
B) Net Profit Margin
C) Operating Profit Margin
D) Return on Equity
Answer: B) Net Profit Margin
The formula for the Operating Profit Margin is:
A) Operating Income / Net Sales
B) Net Income / Net Sales
C) Gross Profit / Net Sales
D) Operating Income / Total Assets
Answer: A) Operating Income / Net Sales
Which ratio measures how much of a company’s earnings are being paid out as dividends?
A) Dividend Payout Ratio
B) Dividend Yield
C) Retained Earnings Ratio
D) Return on Equity
Answer: A) Dividend Payout Ratio
The formula for the Inventory Turnover Ratio is:
A) Cost of Goods Sold / Average Inventory
B) Net Sales / Average Inventory
C) Gross Profit / Average Inventory
D) Average Inventory / Cost of Goods Sold
Answer: A) Cost of Goods Sold / Average Inventory
Which ratio measures the amount of profit a company earns relative to its total revenue?
A) Gross Profit Margin
B) Net Profit Margin
C) Return on Assets
D) Return on Equity
Answer: B) Net Profit Margin
The formula for the Debt to Asset Ratio is:
A) Total Debt / Total Assets
B) Total Debt / Total Equity
C) Total Assets / Total Liabilities
D) Total Liabilities / Total Assets
Answer: A) Total Debt / Total Assets
Which ratio measures the financial leverage of a company?
A) Debt to Equity Ratio
B) Return on Assets
C) Gross Profit Margin
D) Current Ratio
Answer: A) Debt to Equity Ratio
The formula for the Return on Equity (ROE) is:
A) Net Income / Shareholders’ Equity
B) Net Income / Total Assets
C) Operating Income / Net Sales
D) Gross Profit / Total Assets
Answer: A) Net Income / Shareholders’ Equity
Which ratio measures the proportion of earnings that are reinvested in the company rather than paid out as dividends?
A) Dividend Payout Ratio
B) Retained Earnings Ratio
C) Dividend Yield
D) Return on Assets
Answer: B) Retained Earnings Ratio
The formula for the Cash Conversion Cycle is:
A) Days Sales Outstanding + Days Inventory Outstanding – Days Payable Outstanding
B) Days Sales Outstanding – Days Inventory Outstanding + Days Payable Outstanding
C) Days Inventory Outstanding – Days Sales Outstanding + Days Payable Outstanding
D) Days Payable Outstanding + Days Inventory Outstanding – Days Sales Outstanding
Answer: A) Days Sales Outstanding + Days Inventory Outstanding – Days Payable Outstanding
Which ratio is used to evaluate the efficiency of asset utilization?
A) Asset Turnover Ratio
B) Return on Assets
C) Return on Equity
D) Gross Profit Margin
Answer: A) Asset Turnover Ratio
The formula for the Earnings Before Interest and Taxes (EBIT) Margin is:
A) EBIT / Net Sales
B) Net Income / Net Sales
C) Gross Profit / Net Sales
D) Operating Income / Total Assets
Answer: A) EBIT / Net Sales
Which ratio indicates the ability of a company to pay off its short-term liabilities with its most liquid assets?
A) Current Ratio
B) Quick Ratio
C) Cash Ratio
D) Debt to Equity Ratio
Answer: B) Quick Ratio
The formula for the Cash Ratio is:
A) Cash and Cash Equivalents / Current Liabilities
B) Cash and Cash Equivalents / Total Assets
C) Current Assets / Current Liabilities
D) (Cash + Marketable Securities) / Current Liabilities
Answer: A) Cash and Cash Equivalents / Current Liabilities
Which ratio assesses the profitability from operating activities before interest and taxes?
A) EBIT Margin
B) Gross Profit Margin
C) Net Profit Margin
D) Operating Profit Margin
Answer: A) EBIT Margin
The formula for the Dividend Yield is:
A) Dividends per Share / Market Price per Share
B) Earnings per Share / Market Price per Share
C) Dividends per Share / Earnings per Share
D) Market Price per Share / Dividends per Share
Answer: A) Dividends per Share / Market Price per Share
Which ratio measures the proportion of equity financing relative to total assets?
A) Equity Ratio
B) Debt Ratio
C) Debt to Equity Ratio
D) Return on Assets
Answer: A) Equity Ratio
The formula for the Receivables Turnover Ratio is:
A) Net Credit Sales / Average Accounts Receivable
B) Net Sales / Average Accounts Receivable
C) Average Accounts Receivable / Net Credit Sales
D) Net Credit Sales / Total Receivables
Answer: A) Net Credit Sales / Average Accounts Receivable
Which ratio indicates how effectively a company is using its working capital to generate sales?
A) Working Capital Turnover Ratio
B) Inventory Turnover Ratio
C) Asset Turnover Ratio
D) Receivables Turnover Ratio
Answer: A) Working Capital Turnover Ratio
The formula for the Price to Earnings (P/E) Ratio is:
A) Market Price per Share / Earnings per Share
B) Earnings per Share / Market Price per Share
C) Net Income / Market Price per Share
D) Market Price per Share / Book Value per Share
Answer: A) Market Price per Share / Earnings per Share
Which ratio measures the percentage of net income a company earns per dollar of sales?
A) Gross Profit Margin
B) Operating Profit Margin
C) Net Profit Margin
D) Return on Assets
Answer: C) Net Profit Margin
The formula for the Return on Assets (ROA) is:
A) Net Income / Total Assets
B) Net Income / Shareholders’ Equity
C) Operating Income / Net Sales
D) Gross Profit / Total Assets
Answer: A) Net Income / Total Assets
Which ratio measures the proportion of profit a company makes from its operations relative to its total sales?
A) Operating Profit Margin
B) Net Profit Margin
C) Gross Profit Margin
D) Return on Equity
Answer: A) Operating Profit Margin
The formula for the Asset Turnover Ratio is:
A) Net Sales / Average Total Assets
B) Gross Profit / Average Total Assets
C) Net Income / Average Total Assets
D) Operating Income / Average Total Assets
Answer: A) Net Sales / Average Total Assets
Which ratio indicates the proportion of a company’s earnings that is paid out as dividends?
A) Dividend Yield
B) Dividend Payout Ratio
C) Retained Earnings Ratio
D) Earnings Per Share
Answer: B) Dividend Payout Ratio
The formula for the Retained Earnings Ratio is:
A) Retained Earnings / Net Income
B) Net Income / Retained Earnings
C) Dividends / Net Income
D) Net Income / Total Equity
Answer: A) Retained Earnings / Net Income
Which ratio measures how many times a company’s inventory is sold and replaced over a period?
A) Inventory Turnover Ratio
B) Receivables Turnover Ratio
C) Asset Turnover Ratio
D) Current Ratio
Answer: A) Inventory Turnover Ratio
The formula for the Debt to Equity Ratio is:
A) Total Debt / Total Equity
B) Total Liabilities / Total Assets
C) Total Assets / Total Liabilities
D) Total Debt / Total Assets
Answer: A) Total Debt / Total Equity
Which ratio measures the amount of cash available to cover current liabilities?
A) Current Ratio
B) Quick Ratio
C) Cash Ratio
D) Operating Cash Flow Ratio
Answer: C) Cash Ratio
The formula for the Debt Ratio is:
A) Total Liabilities / Total Assets
B) Total Debt / Total Equity
C) Total Liabilities / Total Equity
D) Total Debt / Total Assets
Answer: A) Total Liabilities / Total Assets
Which ratio measures the company’s ability to generate profit relative to its equity capital?
A) Return on Equity
B) Return on Assets
C) Gross Profit Margin
D) Operating Profit Margin
Answer: A) Return on Equity
The formula for the Dividend Payout Ratio is:
A) Dividends per Share / Earnings per Share
B) Earnings per Share / Dividends per Share
C) Dividends / Net Income
D) Net Income / Dividends per Share
Answer: C) Dividends / Net Income
Which ratio assesses how effectively a company is generating profits from its sales?
A) Net Profit Margin
B) Gross Profit Margin
C) Return on Assets
D) Return on Equity
Answer: A) Net Profit Margin
The formula for the Working Capital Turnover Ratio is:
A) Net Sales / Average Working Capital
B) Net Sales / Average Inventory
C) Net Sales / Average Receivables
D) Average Working Capital / Net Sales
Answer: A) Net Sales / Average Working Capital
Which ratio shows how efficiently a company is using its assets to generate revenue?
A) Asset Turnover Ratio
B) Return on Assets
C) Return on Equity
D) Gross Profit Margin
Answer: A) Asset Turnover Ratio
The formula for the Return on Equity (ROE) is:
A) Net Income / Shareholders’ Equity
B) Net Income / Total Assets
C) Operating Income / Net Sales
D) Gross Profit / Total Assets
Answer: A) Net Income / Shareholders’ Equity