True and False

1. Operating Profit Margin = Net Operating Profit / Sales.

2. Gross Profit Margin = Gross Profit / Total Assets.

3. Coverage financial ratios are similar to liquidity ratios in that they describe the ability of a firm to pay certain expenses.

4. Low inventory turnover is considered to be good because it means that the opportunity costs of holding inventory are low, but if it is too low the firm may be risking inventory outages and the loss of customers.

5. Current Ratio = Total Assets / Total Liabilities.

6. Times Interest Earned = Net Income / Interest Expense.

7. Because net income is profit after all expenses, the net profit margin tells us the percentage of sales that remains for the shareholders of the firm either as dividends or retained earnings.

8.EBIT does not really reflect the cash that is available to pay the firms interest expense because a noncash expense, depreciation, has been subtracted in the calculation of EBIT.

9. Leverage financial ratios reveal the degree to which debt has been used to finance the firms asset purchases.

10. With liquidity ratios, it is assumed that the fixed assets will be converted to cash which will then be used to retire total liabilities.