Question 1

The formula for the profit margin ratio is:

Accepted Answer

A) revenue/profit. 
B) profit after tax/total assets. 
C) profit after tax/revenues. 
D) gross profit/net sales. 
A) revenue/profit. 
B) profit after tax/total assets. 
C) profit after tax/revenues. 
D) gross profit/net sales. C

Question 2

A profit ratio for a retailer of 4.1% in year 2 compared to 5.5% for the previous year indicates:

Accepted Answer

A) an improving profit margin. 
B) a declining profit margin. 
C) no change in the profit margin. 
D) impending bankruptcy. 
A) an improving profit margin. 
B) a declining profit margin. 
C) no change in the profit margin. 
D) impending bankruptcy. B

Question 3

How many of these ratios measure the adequacy of profits?
-Profit before interest and finance costs/ finance costs
-Profit compared to total assets
-Profit compared to sales
-Profit compared to equity

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4 C

Question 4

How many of these are possible uses of financial analysis?
-By shareholders to assess future profitability and financial stability
-By management for planning and control
-By financial analysts to predict future share price
-By the government to estimate taxation payable

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 5

Financial stability refers to the ability of an entity to:

Accepted Answer

A) earn a high rate of profit. 
B) reduce expenses. 
C) increase market share. 
D) meet long-term obligations. 
A) earn a high rate of profit. 
B) reduce expenses. 
C) increase market share. 
D) meet long-term obligations.

Question 6

Of the following firms,would be expected to have the fastest inventory turnover?

Accepted Answer

A) Sports car showroom 
B) Jewellery store 
C) Fruit and veg.shop 
D) Clothing store 
A) Sports car showroom 
B) Jewellery store 
C) Fruit and veg.shop 
D) Clothing store

Question 7

The use of borrowed funds in an attempt to earn a return greater than the cost of borrowing is known as:

Accepted Answer

A) gearing or leverage. 
B) capital budgeting. 
C) equity funding. 
D) overdraft financing. 
A) gearing or leverage. 
B) capital budgeting. 
C) equity funding. 
D) overdraft financing.

Question 8

All of these ratios are measures of aspects of a firm's profitability,except:

Accepted Answer

A) return on total assets. 
B) earnings yield. 
C) current ratio. 
D) dividend yield. 
A) return on total assets. 
B) earnings yield. 
C) current ratio. 
D) dividend yield.

Question 9

Vertical analysis of a balance sheet usually:

Accepted Answer

A) calculates each balance sheet item as a percentage of sales. 
B) calculates each balance sheet item as a percentage of total assets (funds). 
C) calculates each balance sheet item as a percentage of the bank balance. 
D) calculates each balance sheet item as a percentage of share capital. 
A) calculates each balance sheet item as a percentage of sales. 
B) calculates each balance sheet item as a percentage of total assets (funds). 
C) calculates each balance sheet item as a percentage of the bank balance. 
D) calculates each balance sheet item as a percentage of share capital.

Question 10

Annual dividend per ordinary share divided by market price per ordinary share measures:

Accepted Answer

A) dividend yield. 
B) dividend per share. 
C) dividend payout ratio. 
D) earnings per share. 
A) dividend yield. 
B) dividend per share. 
C) dividend payout ratio. 
D) earnings per share.

Question 11

Ratios are normally divided into three general groups,which of these is not one of those groups?

Accepted Answer

A) Profitability ratios 
B) Liability ratios 
C) Liquidity ratios 
D) Financial stability ratios 
A) Profitability ratios 
B) Liability ratios 
C) Liquidity ratios 
D) Financial stability ratios

Question 12

Which statement concerning the current (working capital)ratio is incorrect?

Accepted Answer

A) A low current ratio may indicate difficulty in meeting short-term commitments. 
B) The current ratio can be manipulated at balance date, 
C) A high current ratio may indicate excessive investment in working capital. 
D) A current ratio of $1.50 of current assets for each $1 of current liabilities should always be maintained. 
E) g.by using cash to pay off short-term debt. 
A) A low current ratio may indicate difficulty in meeting short-term commitments. 
B) The current ratio can be manipulated at balance date, 
C) A high current ratio may indicate excessive investment in working capital. 
D) A current ratio of $1.50 of current assets for each $1 of current liabilities should always be maintained. 
E) g.by using cash to pay off short-term debt.

Question 13

If an entity is able to earn more on borrowings than the cost of those borrowings the return on equity will:

Accepted Answer

A) increase. 
B) decrease. 
C) be unchanged. 
D) vary. 
A) increase. 
B) decrease. 
C) be unchanged. 
D) vary.

Question 14

Cash flows from operating activities divided by (repayments of long-term borrowings + assets acquired + dividends paid)is the formula for:

Accepted Answer

A) cash flow adequacy ratio. 
B) repayment of long-term borrowing ratio. 
C) debt coverage ratio. 
D) operations index. 
A) cash flow adequacy ratio. 
B) repayment of long-term borrowing ratio. 
C) debt coverage ratio. 
D) operations index.

Question 15

If the interim dividend was 5c per ordinary share,the final dividend 7c per share and the market price per share on 30 June 2014 $3.20,the dividend yield is:

Accepted Answer

A) 3.75%. 
B) 37.5%. 
C) 26.7%. 
D) 6%. 
A) 3.75%. 
B) 37.5%. 
C) 26.7%. 
D) 6%.

Question 16

Trends in ratios that measure the relationship between debt and equity provide information about how many of the following?
-Long term stability
-Degree of risk in using debt financing
-Margin of safety to creditors in the event of liquidation

Accepted Answer

A) 0 
B) 1 
C) 2 
D) 3 
A) 0 
B) 1 
C) 2 
D) 3

Question 17

The ratio which would be most helpful to an investor who is investing in ordinary shares primarily for dividends rather than for appreciation in market price,is:

Accepted Answer

A) return on total assets. 
B) dividend yield. 
C) rate of return on ordinary equity. 
D) current ratio. 
A) return on total assets. 
B) dividend yield. 
C) rate of return on ordinary equity. 
D) current ratio.

Question 18

This is South Ltd's balance sheet at year-end.
Current assets $140 000
Long-term assets 320 000
Current liabilities 65 000
Long-term liabilities 119 000
Share capital 100 000
Retained earnings 176 000
The equity ratio is:

Accepted Answer

A) 40%. 
B) 43%. 
C) 60%. 
D) 66%. 
A) 40%. 
B) 43%. 
C) 60%. 
D) 66%.

Question 19

How many of these ratios measure the relationship between debt and equity?
-The debt ratio
-The equity (proprietorship)ratio
-The leverage ratio (total assets/total equity)
-The current ratio

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 20

All of these are limitations of financial ratio analysis except:

Accepted Answer

A) suitable yardsticks may not be available with which to compare results. 
B) excessive information disclosed in company annual reports. 
C) year-end data is not necessarily typical of the position during the year. 
D) it is past performance that is being analysed. 
A) suitable yardsticks may not be available with which to compare results. 
B) excessive information disclosed in company annual reports. 
C) year-end data is not necessarily typical of the position during the year. 
D) it is past performance that is being analysed.

The formula for the profit margin ratio is:

A profit ratio for a retailer of 4.1% in year 2 compared to 5.5% for the previous year indicates:

How many of these ratios measure the adequacy of profits? -Profit before interest and finance costs/ finance costs -Profit compared to total assets -Profit compared to sales -Profit compared to equity

How many of these are possible uses of financial analysis? -By shareholders to assess future profitability and financial stability -By management for planning and control -By financial analysts to predict future share price -By the government to estimate taxation payable

Financial stability refers to the ability of an entity to:

Of the following firms,would be expected to have the fastest inventory turnover?

The use of borrowed funds in an attempt to earn a return greater than the cost of borrowing is known as:

All of these ratios are measures of aspects of a firm's profitability,except:

Vertical analysis of a balance sheet usually:

Annual dividend per ordinary share divided by market price per ordinary share measures:

Ratios are normally divided into three general groups,which of these is not one of those groups?

Which statement concerning the current (working capital)ratio is incorrect?

If an entity is able to earn more on borrowings than the cost of those borrowings the return on equity will:

Cash flows from operating activities divided by (repayments of long-term borrowings + assets acquired + dividends paid)is the formula for:

If the interim dividend was 5c per ordinary share,the final dividend 7c per share and the market price per share on 30 June 2014 $3.20,the dividend yield is:

Trends in ratios that measure the relationship between debt and equity provide information about how many of the following? -Long term stability -Degree of risk in using debt financing -Margin of safety to creditors in the event of liquidation

The ratio which would be most helpful to an investor who is investing in ordinary shares primarily for dividends rather than for appreciation in market price,is:

This is South Ltd's balance sheet at year-end. Current assets $140 000 Long-term assets 320 000 Current liabilities 65 000 Long-term liabilities 119 000 Share capital 100 000 Retained earnings 176 000 The equity ratio is:

How many of these ratios measure the relationship between debt and equity? -The debt ratio -The equity (proprietorship)ratio -The leverage ratio (total assets/total equity) -The current ratio

All of these are limitations of financial ratio analysis except:

Decision Making and the Role of Accounting

Financial Statements for Decision Making

Recording Transactions

Adjusting the Accounts and Preparing Financial Statements

Completing the Accounting Cycle Closing and Reversing Entries

Accounting for Retailing

Accounting for Systems

Partnerships: Formation,operation and Reporting

Companies: Formation and Operations

Regulation and the Conceptual Framework

Cash Management and Control

Receivables

Inventories

Non-Current Assets: Acquisition and Depreciation

Non-Current Assets: Revaluation,disposal and Other Aspects

Liabilities

Presentation of Financial Statements

Statement of Cash Flows

Filters

Exam 19: Analysis and Interpretation of Financial Statements

The formula for the profit margin ratio is:

A profit ratio for a retailer of 4.1% in year 2 compared to 5.5% for the previous year indicates:

How many of these ratios measure the adequacy of profits? -Profit before interest and finance costs/ finance costs -Profit compared to total assets -Profit compared to sales -Profit compared to equity

How many of these are possible uses of financial analysis? -By shareholders to assess future profitability and financial stability -By management for planning and control -By financial analysts to predict future share price -By the government to estimate taxation payable

Financial stability refers to the ability of an entity to:

Of the following firms,would be expected to have the fastest inventory turnover?

The use of borrowed funds in an attempt to earn a return greater than the cost of borrowing is known as:

All of these ratios are measures of aspects of a firm's profitability,except:

Vertical analysis of a balance sheet usually:

Annual dividend per ordinary share divided by market price per ordinary share measures:

Ratios are normally divided into three general groups,which of these is not one of those groups?

Which statement concerning the current (working capital)ratio is incorrect?

If an entity is able to earn more on borrowings than the cost of those borrowings the return on equity will:

Cash flows from operating activities divided by (repayments of long-term borrowings + assets acquired + dividends paid)is the formula for:

If the interim dividend was 5c per ordinary share,the final dividend 7c per share and the market price per share on 30 June 2014 $3.20,the dividend yield is:

Trends in ratios that measure the relationship between debt and equity provide information about how many of the following? -Long term stability -Degree of risk in using debt financing -Margin of safety to creditors in the event of liquidation

The ratio which would be most helpful to an investor who is investing in ordinary shares primarily for dividends rather than for appreciation in market price,is:

This is South Ltd's balance sheet at year-end. Current assets $140 000 Long-term assets 320 000 Current liabilities 65 000 Long-term liabilities 119 000 Share capital 100 000 Retained earnings 176 000 The equity ratio is:

How many of these ratios measure the relationship between debt and equity? -The debt ratio -The equity (proprietorship)ratio -The leverage ratio (total assets/total equity) -The current ratio

All of these are limitations of financial ratio analysis except:

Decision Making and the Role of Accounting

Financial Statements for Decision Making

Recording Transactions

Adjusting the Accounts and Preparing Financial Statements

Completing the Accounting Cycle Closing and Reversing Entries

Accounting for Retailing

Accounting for Systems

Partnerships: Formation,operation and Reporting

Companies: Formation and Operations

Regulation and the Conceptual Framework

Cash Management and Control

Receivables

Inventories

Non-Current Assets: Acquisition and Depreciation

Non-Current Assets: Revaluation,disposal and Other Aspects

Liabilities

Presentation of Financial Statements

Statement of Cash Flows

Filters