1) Which two key financial ratios is correct?

a)Gross profit margin: Sales Revenues Cost of Goods Sold/Sales Revenues

The ratio shows the % of revenues available to cover operating expenses and yield a profit. Higher is better and the trend should upward.

b)Operating profit margin: Sales Revenues Operating Expenses/Sales Revenues

The ratio shows the profitability of current operations without regard to interest charges and income taxes. Earnings before interest and taxes is commonly referred to as EBIT. Higher is better and the trend should be upward.

c)Operating profit margin: Sales Revenues + Operating Expenses/Sales Revenues

The ratio shows the profitability of current operations without regard to interest charges and income taxes. Earnings before interest and taxes is commonly referred to as EBIT. Lower is better and the trend should be downward.

d)Net profit margin: Profits After Taxes/Sales Revenues

Shows after-tax profits per dollar of sales.

e)Net profit margin: Profits Before Taxes/Sales Revenues

Shows before-tax profits per dollar of sales.

2) Is this key financial ratio below, correct?

Total return on assets: Profits After Taxes + Interest/Total Assets

a)Yes, the formula is correct

b)No, the formula is incorrect

A measure of the return on total investment in the enterprise. Interest is added to after-tax profits to form the numerator since total assets are financed by creditors as well as by stockholders.

3) What is the key financial ratio formula for the return that stockholders are earning on their capital investment in the enterprise?

a)Profits After Taxes/Total Assets

b)Profits After Taxes/Long Term Debt + Total Stockholders Equity

c)Profits After Taxes/Total Stockholders Equity

4)What is the key financial ratio formula for working capital? The cash available for the firms day-to-day operations.

a)Current Assets + Current Liabilities

b) Current Assets Current Liabilities

cCurrent Assets /Current Liabilities

5) What is the key financial ratio formula for long-term debt-to-capital ratio? The measure of the creditworthiness of the balance sheets strength.

a) Long Term Debt/Long-Term Debt + Total Stockholders Equity

b) Long-Term Debt/Long Term Debt Total Stockholders Equity

6) Is the key financial ratio formula attached below for measuring the number of inventory turns per year, correct?

Inventory Turnover: Cost of Goods Sold/Inventory

a) correct

b) incorrect