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D076 Pre-Assessment QUESTION AND ANSWER VERIFIED
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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 t...

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  • February 3, 2024
  • 5
  • 2023/2024
  • Exam (elaborations)
  • Questions & answers

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  • d076 pre assessment question and answer verified

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  • A/AS Level
  • AQA
  • WGU
  • WGU D076
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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

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