Question 1

Which of the following could NOT explain an increase in the return on equity ratio?

Accepted Answer

A)  Share buyback 
B)  Declaring a final dividend 
C)  Increase in profits 
D)  Purchase of land on credit 
A)  Share buyback 
B)  Declaring a final dividend 
C)  Increase in profits 
D)  Purchase of land on credit

Question 2

Unstable Ltd has decided to change its depreciation method from straight-line to reducing balance. As a result, its annual depreciation expense increases by $200 000. The company's income tax rate is 30 per cent. What is the effect on the debt-to-equity ratio?

Accepted Answer

A)  It increases. 
B)  It decreases. 
C)  There is no effect. 
D)  It cannot be determined from the information provided. 
A)  It increases. 
B)  It decreases. 
C)  There is no effect. 
D)  It cannot be determined from the information provided.

Question 3

Hard-up Ltd has a current ratio of 0.75. Its current liabilities amount to $200 000. It borrows $75 000 from a finance company, repayable in five years. What is the current ratio following the loan?

Accepted Answer

A)  0.818 
B)  1.125 
C)  It cannot be determined from the above information 
D)  None of the answers provided 
A)  0.818 
B)  1.125 
C)  It cannot be determined from the above information 
D)  None of the answers provided

Question 4

Which of the following statements is true?

Accepted Answer

A)  If the asset turnover ratio remains constant and the profit margin increases, return on assets must have increased. 
B)  If return on assets increases, return on equity must increase. 
C)  If the current ratio increases, the quick ratio will also increase. 
D)  None of the answers provided. 
A)  If the asset turnover ratio remains constant and the profit margin increases, return on assets must have increased. 
B)  If return on assets increases, return on equity must increase. 
C)  If the current ratio increases, the quick ratio will also increase. 
D)  None of the answers provided.

Question 5

Which of the ratios listed helps to indicate the efficiency with which the resources of the company are being utilised to generate profit?

Accepted Answer

A)  Current ratio 
B)  Profit margin 
C)  Quick ratio 
D)  Return on assets 
A)  Current ratio 
B)  Profit margin 
C)  Quick ratio 
D)  Return on assets

Question 6

The following question relates to PQR, which has the following ratios: return on assets, (ROA) 10 per cent; return on equity (ROE) 12 per cent; and current ratio (CR) of 1.8:1. The company purchased raw materials on credit for $400 000. This transaction will:

Accepted Answer

A)  decrease ROA, ROE and CR. 
B)  decrease ROA and CR, but not ROE. 
C)  decrease ROA only. 
D)  have no effect. 
A)  decrease ROA, ROE and CR. 
B)  decrease ROA and CR, but not ROE. 
C)  decrease ROA only. 
D)  have no effect.

Question 7

Which of the following statements about a ratio is NOT true?

Accepted Answer

A)  If the financial statements are materially misstated, then ratios will be misleading. 
B)  A ratio is always expressed as a percentage. 
C)  A ratio can be interpreted and used meaningfully only with a good understanding of the company. 
D)  Ratios are indicators that can be interpreted. 
A)  If the financial statements are materially misstated, then ratios will be misleading. 
B)  A ratio is always expressed as a percentage. 
C)  A ratio can be interpreted and used meaningfully only with a good understanding of the company. 
D)  Ratios are indicators that can be interpreted.

Question 8

Which of the following statements about the profit margin is NOT true?

Accepted Answer

A)  The profit margin indicates the percentage of sales revenue that ends up as profit. 
B)  The profit margin gives some indication of pricing strategy. 
C)  A supermarket would be expected to have a high profit margin. 
D)  If the sales price decreases and expenses stay consistent, the profit margin will decrease. 
A)  The profit margin indicates the percentage of sales revenue that ends up as profit. 
B)  The profit margin gives some indication of pricing strategy. 
C)  A supermarket would be expected to have a high profit margin. 
D)  If the sales price decreases and expenses stay consistent, the profit margin will decrease.

Question 9

Which of the ratios listed helps to indicate the ability of the company to meet its current obligations?

Accepted Answer

A)  Current ratio 
B)  Profit margin 
C)  Debt-to-equity 
D)  Return on assets 
A)  Current ratio 
B)  Profit margin 
C)  Debt-to-equity 
D)  Return on assets

Question 10

Which of the ratios listed helps to indicate whether current liabilities could be paid without having to sell the inventory?

Accepted Answer

A)  Current ratio 
B)  Profit margin 
C)  Quick ratio 
D)  Return on assets 
A)  Current ratio 
B)  Profit margin 
C)  Quick ratio 
D)  Return on assets

Which of the following could NOT explain an increase in the return on equity ratio?

Unstable Ltd has decided to change its depreciation method from straight-line to reducing balance. As a result, its annual depreciation expense increases by $200 000. The company's income tax rate is 30 per cent. What is the effect on the debt-to-equity ratio?

Hard-up Ltd has a current ratio of 0.75. Its current liabilities amount to $200 000. It borrows $75 000 from a finance company, repayable in five years. What is the current ratio following the loan?

Which of the following statements is true?

Which of the ratios listed helps to indicate the efficiency with which the resources of the company are being utilised to generate profit?

The following question relates to PQR, which has the following ratios: return on assets, (ROA) 10 per cent; return on equity (ROE) 12 per cent; and current ratio (CR) of 1.8:1. The company purchased raw materials on credit for $400 000. This transaction will:

Which of the following statements about a ratio is NOT true?

Which of the following statements about the profit margin is NOT true?

Which of the ratios listed helps to indicate the ability of the company to meet its current obligations?

Which of the ratios listed helps to indicate whether current liabilities could be paid without having to sell the inventory?

Introduction to Financial Accounting

Measuring and Evaluating Financial Position and Financial Performance

The Double-Entry System

Record-Keeping

Accrual Accounting Adjustments

Financial Reporting Principles, Accounting Standards and Auditing

Internal Control and Cash

Accounts Receivable and Further Record-Keeping

Inventory

Noncurrent Assets

Liabilities

Completing the Balance Sheet

Revenue and Expense Recognition: Additional Concepts

The Statement of Cash Flows

Accounting Policy Choices

Sustainability Reporting

Filters

Exam 15: Financial Statement Analysis

Which of the following could NOT explain an increase in the return on equity ratio?

Unstable Ltd has decided to change its depreciation method from straight-line to reducing balance. As a result, its annual depreciation expense increases by $200 000. The company's income tax rate is 30 per cent. What is the effect on the debt-to-equity ratio?

Hard-up Ltd has a current ratio of 0.75. Its current liabilities amount to $200 000. It borrows $75 000 from a finance company, repayable in five years. What is the current ratio following the loan?

Which of the following statements is true?

Which of the ratios listed helps to indicate the efficiency with which the resources of the company are being utilised to generate profit?

The following question relates to PQR, which has the following ratios: return on assets, (ROA) 10 per cent; return on equity (ROE) 12 per cent; and current ratio (CR) of 1.8:1. The company purchased raw materials on credit for $400 000. This transaction will:

Which of the following statements about a ratio is NOT true?

Which of the following statements about the profit margin is NOT true?

Which of the ratios listed helps to indicate the ability of the company to meet its current obligations?

Which of the ratios listed helps to indicate whether current liabilities could be paid without having to sell the inventory?

Introduction to Financial Accounting

Measuring and Evaluating Financial Position and Financial Performance

The Double-Entry System

Record-Keeping

Accrual Accounting Adjustments

Financial Reporting Principles, Accounting Standards and Auditing

Internal Control and Cash

Accounts Receivable and Further Record-Keeping

Inventory

Noncurrent Assets

Liabilities

Completing the Balance Sheet

Revenue and Expense Recognition: Additional Concepts

The Statement of Cash Flows

Accounting Policy Choices

Sustainability Reporting

Filters