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1.
What does accounts receivable turnover measure?
How effective the company's credit policies are. For example, if the ratio is too low, the company may be having trouble collecting what it is owed.
2.
A company's debt/equity ratio measures _______.
How much of the company is financed by its debt holders compared with its equity holders. The higher the ratio, the more debt is being used.
3.
Liquidity ratios attempt to measure _______.
How likely a company will be able to meet its near-term obligations.
4.
What is the best way to use financial ratios?
Both of the above. Looked at by themselves, many financial ratios don't tell much. The best way to use them is to compare them with similar companies and to compare them for the same company over time to identify trends.
5.
When calculating a company's return on assets, which of the following expenses should be added back to the numerator after-tax?
Interest. Return on assets measures the profitability of a company, regardless of whether its assets are financed by equityholders or debtholders. As such, we add back in what the debtholders are charging the company to borrow money.
