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Match Each Ratio That Follows to Its Use (Items A-H)

Question 42

Matching

Match each ratio that follows to its use (items a-h). Items may be used more than once.

Premises:

Responses:

current ratio

indicate future earnings prospects

ratio of liabilities to stockholders' equity

assess the effectiveness in the use of assets

dividends per share

assess the profitability of the investment by common stockholders

earnings per share (EPS) on common stock

indicate instant debt-paying ability

quick ratio

indicate the ability to meet currently maturing obligations

rate earned on total assets

indicate the extent to which earnings are being distributed to common stockholders

working capital

assess the profitability of the assets

ratio of sales to assets

indicate the margin of safety to creditors

price-earnings (P/E) ratio

rate earned on common stockholders' equity

Premises:

current ratio

ratio of liabilities to stockholders' equity

dividends per share

earnings per share (EPS) on common stock

quick ratio

rate earned on total assets

working capital

ratio of sales to assets

price-earnings (P/E) ratio

rate earned on common stockholders' equity

Responses:

indicate future earnings prospects

assess the effectiveness in the use of assets

assess the profitability of the investment by common stockholders

indicate instant debt-paying ability

indicate the ability to meet currently maturing obligations

indicate the extent to which earnings are being distributed to common stockholders

assess the profitability of the assets

indicate the margin of safety to creditors

Correct Answer:

Premises:

Responses:

current ratio

ratio of liabilities to stockholders' equity

dividends per share

earnings per share (EPS) on common stock

quick ratio

rate earned on total assets

working capital

ratio of sales to assets

price-earnings (P/E) ratio

rate earned on common stockholders' equity