Practice question · Match the pairs
Match each balance-sheet ratio to what it measures.
- Current ratio
- Debt-to-equity
- Net working capital
- Net book value
- Can the firm pay its short-term bills?
- The short-term liquidity cushion
- An asset's cost minus accumulated depreciation
- How much creditor money per euro of owners' money?
Hints
- Each ratio answers a different question about the position.
- One compares short-term resources against short-term obligations.
Show the answer
- Current ratio → Can the firm pay its short-term bills?
- Debt-to-equity → How much creditor money per euro of owners' money?
- Net working capital → The short-term liquidity cushion
- Net book value → An asset's cost minus accumulated depreciation
Why
Four numbers, four questions, liquidity, leverage, cushion, and asset wear.
Practise The Balance Sheet
The app has 6 more questions on this lesson, and keeps your place in the course. Business I is free to start.
More questions on The Balance Sheet
- A firm with negative net working capital is always insolvent.
- Current or non-current? Classify each item.
- A supermarket chain runs with negative working capital year after year and is perfectly healthy. How?
- A company has current assets 80 and current liabilities 110. What does this tell us?
- Which items belong in the equity section of the balance sheet?
- Order balance-sheet items from most liquid to least liquid.