Accounting - UW ACCTG 225 (Accounting Ratios & Other important things to remember)
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Unlock the secrets of financial ratios and business performance with our comprehensive quiz document tailored for Business and Management students! This expertly crafted resource covers essential financial metrics and performance indicators, including margin of safety, return on investment, and inv...
ACCOUNTING
UW ACCTG 225
Accounting ratios & important things to remember
Edition: 2024/2025
Compiled By: Simon Mwangi
, Accounting 2 of 19 pages
Circle the letter of the Definition that corresponds to the displayed Term.
1
Question: times interest earned
a) Budgeted (Planning) - Applied to WIP (Flexible)
b) cost of goods sold / average inventory balance
c) earnings before interest expense and income taxes (EBIT) / interest expense
d) total stockholder's equity / number of common shares outstanding
Correct Answer: earnings before interest expense and income taxes (EBIT) / interest expense
Explanation: The times interest earned ratio measures a company's ability to meet its interest
payments, calculated by dividing earnings before interest expense and income taxes by interest
expense.
2
Question: Spending or Revenue Variances
a) Quick Assets / Current Liabilities
b) Investment required / lump sum amount
c) Actual - Flexible
d) Present value of cash inflows - Present value of cash outflows
Correct Answer: Actual - Flexible
Explanation: Spending or revenue variances are the differences between actual results and flexible
budget amounts.
3
Question: Net Present Value
a) annual incremental NOI / initial investment
b) Contribution Margin / sales
c) Present value of cash inflows - Present value of cash outflows
d) 365 days / Inventory turnover
Correct Answer: Present value of cash inflows - Present value of cash outflows
Explanation: Net Present Value (NPV) is the difference between the present value of cash inflows and
the present value of cash outflows.
GoldenChapter – Stuvia 2024/2025 Edition
, Accounting 3 of 19 pages
4
Question: Margin of Safety (percentage)
a) dividends per share / earnings per share
b) Net income + Tax Expense + Interest Expense
c) Margin of Safety in dollars / total budgeted (or actual) sales
d) sales / average total assets
Correct Answer: Margin of Safety in dollars / total budgeted (or actual) sales
Explanation: The margin of safety percentage represents the extent to which sales can drop before the
company reaches its breakeven point, calculated by dividing the margin of safety in dollars by total
budgeted or actual sales.
5
Question: Current ratio
a) AQ purchased (AP - SP)
b) Revenue - COGS
c) Current assets / Current liabilities
d) Cash, marketable securities, accounts receivable, and short-term notes receivable
Correct Answer: Current assets / Current liabilities
Explanation: The current ratio measures a company's ability to pay short-term liabilities with short-
term assets, calculated by dividing current assets by current liabilities.
6
Question: Efficiency Variance
a) sales / average total assets
b) Total liabilities / stockholder's equity
c) Revenue - Variable Costs
d) SRAH - SR(SH * actual units produced) (flexible)
Correct Answer: SRAH - SR(SH * actual units produced) (flexible)
Explanation: Efficiency variance is calculated as the difference between standard rate for actual hours
worked and actual rate for the same hours worked.
GoldenChapter – Stuvia 2024/2025 Edition
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