Question

Answer the following (True or False):

1. Current liabilities divided by current assets gives the current ratio:

2. The quick ratio is the same as the current ratio except that, in the quick ratio, the accounts receivable are not included in the current assets:

3. The total liabilities to total equity ratio is one of several long-term solvency ratios.

4. High financial leverage is indicated by a low debt to equity ratio

5. A company may have a net income without being profitable.

6. The net return on assets is calculated by dividing income before interest and income tax by total average assets.

7. Food standard cost can be affected from one period to the next by a change in the sales mix.

Answer 1

1) current ratio = current assets /current liabilities first statement is false 2) Quick ratio = current assets-prepaid expenses,-inventory/ current liabilities so we can say current assets and quick assets are same. 3) this is true 5) yes company can have rental and interest income IE non operating income and still it is not profitable 6) return on total assets= net profit before tax and interest / average assets so statement is true