$$ROE = \frac{Net\ income}{Sales} \times \frac{Sales}{Total\ Assets} \times \frac{Total\ Assets}{Equity}$$

$$FV = C \times \frac{(1 + r)^n - 1}{r}$$

$$PV = C \times \frac{1 - (1 + r$$)^{-n}$$}{r}$$

Question 1

A company has current assets of $$120,000 and current liabilities of 80$$,000. What is its current ratio?

Accepted Answer

$$1.5$$

Question 2

If a firm has EBIT of $$50,000 and interest expense of 10$$,000, what is its interest coverage ratio?

Accepted Answer

$$5$$

Question 3

A company has net income of $$40,000, sales of 500$$,000, and total assets of $200,000. What is its Return on Assets (ROA)?

Accepted Answer

$$0.08$$

Question 4

Which formula correctly represents the DuPont Model for Return on Equity (ROE)?

Accepted Answer

$$ROE = \frac{Net\ income}{Sales} 	imes \frac{Sales}{Total\ Assets} 	imes \frac{Total\ Assets}{Equity}$$

Question 5

A company has a payout ratio of $$0.4$$ and a ROE of $$0.15. $$What is its sustainable growth rate?

Accepted Answer

$$0.09$$

Question 6

If a company’s average collection period is 30 days and its average daily sales are $2,000, what is its accounts receivable balance?

Accepted Answer

$$60,000$$

Question 7

A firm has a debt-equity ratio of $$0.5$$ and total equity of $$200,000. $$What is its total debt?

Accepted Answer

$$100,000$$

Question 8

Which of the following best describes the quick ratio?

Accepted Answer

$$\frac{Current\ Assets - Inventory}{Current\ Liabilities}$$

Question 9

A company’s net profit margin is $$8\%$$, asset turnover is $$1.5$$, and equity multiplier is $$2. $$What is its ROE using the DuPont Model?

Accepted Answer

$$0.24$$

Question 10

If a company’s PEG ratio is $$1.2$$, its P/E ratio is $$18$$, what is its expected growth rate?

Accepted Answer

$$15\%$$

Question 11

A firm has a fixed asset turnover of $$2.5$$ and fixed assets of $$400,000. $$What are its sales?

Accepted Answer

$$1,000,000$$

Question 12

Which of the following is the correct formula for the present value of a growing perpetuity?

Accepted Answer

$$PV = \frac{C}{r - g}$$

Question 13

A company has a net income of $$60,000$$, dividends of $$18,000$$, and total equity of $$300,000. $$What is its dividend payout ratio?

Accepted Answer

$$0.3$$

Question 14

If a company’s average inventory is $$50,000$$ and its cost of goods sold is $$300,000$$, what is its inventory turnover ratio?

Accepted Answer

$$6$$

Question 15

A company’s EBIT is $$120,000$$, interest expense is $$30,000$$, and tax rate is $$25\%. $$What is its net income?

Accepted Answer

$$67,500$$

Question 16

Which of the following best describes the formula for the future value of an ordinary annuity?

Accepted Answer

$$FV = C 	imes \frac{(1 + r)^n - 1}{r}$$

Question 17

A company has a market value of equity of $$500,000$$, total debt of $$200,000$$, and cash of $$50,000. $$What is its enterprise value?

Accepted Answer

$$650,000$$

Question 18

If a company’s net income is $$80,000$$, total assets are $$1,000,000$$, and total equity is $$400,000$$, what is its equity multiplier?

Accepted Answer

$$2.5$$

Question 19

A company’s sales are $$600,000$$, cost of goods sold is $$400,000$$, and average inventory is $$50,000. $$What is its inventory turnover ratio?

Accepted Answer

$$8$$

Question 20

Which of the following is the correct formula for the present value of an ordinary annuity?

Accepted Answer

$$PV = C 	imes \frac{1 - (1 + r$$)^{-n}$$}{r}$$

Financial Accounting: Key Ratios, Valuation, and Time Value of Money Formulas

Study Guide - Practice Questions