Question 1

An improvement in the acid test (or quick ratio) can best be explained by:

Accepted Answer

A)  Higher levels of payables 
B)  Reduced levels of receivables 
C)  Reduced levels of inventory 
D)  Higher levels of inventory 
A)  Higher levels of payables 
B)  Reduced levels of receivables 
C)  Reduced levels of inventory 
D)  Higher levels of inventory B

Question 2

A company has capital employed of €1,000,000 and generates a profit after tax of €300,000. The change in return on investment between a Balance Sheet with 60% debt and one with 40% debt is:

Accepted Answer

A)  From 75% to 50% 
B)  From 50% to 75% 
C)  From 60% to 43% 
D)  From 43% to 60% 
A)  From 75% to 50% 
B)  From 50% to 75% 
C)  From 60% to 43% 
D)  From 43% to 60% A

Question 3

Use the following information extracted from ABC's Income Statement and Balance Sheet to answer questions:Sales £4,200,000; Gross profit £2,700,000; Receivables £630,000; Payables £275,000; Inventory £300,000. ABC calculates its financial ratios based on being open for business 6 days per week for 50 weeks per year
-ABC's days' payables outstanding were:

Accepted Answer

A)  30 
B)  45 
C)  50 
D)  55 
A)  30 
B)  45 
C)  50 
D)  55 D

Question 4

A decrease in gross margin may best be explained by:

Accepted Answer

A)  Lower overhead expenses 
B)  Higher overhead expenses 
C)  Lower selling prices 
D)  Lower cost of goods sold 
A)  Lower overhead expenses 
B)  Higher overhead expenses 
C)  Lower selling prices 
D)  Lower cost of goods sold

Question 5

If asset turnover increases, this is an indicator that:

Accepted Answer

A)  Non-current assets are being sold 
B)  Sales have increased 
C)  Non-current assets are being used more efficiently to generate sales 
D)  Profits have increased 
A)  Non-current assets are being sold 
B)  Sales have increased 
C)  Non-current assets are being used more efficiently to generate sales 
D)  Profits have increased

Question 6

An improvement in the interest cover ratio may be best explained by:

Accepted Answer

A)  Reduced debt alone 
B)  Reduced interest rates alone 
C)  Reduced debt and/or reduced interest rates 
D)  Reduced debt and/or reduced interest rates and/or increased profits 
A)  Reduced debt alone 
B)  Reduced interest rates alone 
C)  Reduced debt and/or reduced interest rates 
D)  Reduced debt and/or reduced interest rates and/or increased profits

Question 7

Use the following information to answer questions.The Balance Sheet of MNO Company shows current assets of £1,250,000; current liabilities of £900,000; non-current assets of £2,400,000; and long-term debt of £750,000.
-The gearing ratio is closest to:

Accepted Answer

A)  45% 
B)  37% 
C)  27% 
D)  20% 
A)  45% 
B)  37% 
C)  27% 
D)  20%

Question 8

Use the following information to answer questions.The Balance Sheet of MNO Company shows current assets of £1,250,000; current liabilities of £900,000; non-current assets of £2,400,000; and long-term debt of £750,000.
-The working capital ratio is closest to:

Accepted Answer

A)  192% 
B)  139% 
C)  120% 
D)  110% 
A)  192% 
B)  139% 
C)  120% 
D)  110%

Question 9

An increase in dividend yield is most likely to be caused by:

Accepted Answer

A)  Increased profits 
B)  Increased earnings per share 
C)  Increased market value per share 
D)  Decreased market value per share 
A)  Increased profits 
B)  Increased earnings per share 
C)  Increased market value per share 
D)  Decreased market value per share

Question 10

A business has current assets of $35,000 and current liabilities of $20,000. It collects its receivables more quickly and uses $10,000 of its cash at bank to repay a long-term debt. The effect on the working capital ratio after the long-term debt is repaid is to:

Accepted Answer

A)  Increase from 175% to 250% 
B)  Increase from 175% to 350% 
C)  Decrease from 175% to 150% 
D)  Decrease from 175% to 125% 
A)  Increase from 175% to 250% 
B)  Increase from 175% to 350% 
C)  Decrease from 175% to 150% 
D)  Decrease from 175% to 125%

Question 11

The difference between ROI and ROCE ratios is due to:

Accepted Answer

A)  Interest, tax and long-term debt 
B)  Tax and shareholders' funds 
C)  Long-term debt and shareholders' funds 
D)  Interest and long-term debt 
A)  Interest, tax and long-term debt 
B)  Tax and shareholders' funds 
C)  Long-term debt and shareholders' funds 
D)  Interest and long-term debt

Question 12

The Statement of Cash Flows would identify:

Accepted Answer

A)  Repayments of long-term debt 
B)  Investments in new plant and equipment 
C)  Dividends paid to shareholders 
D)  All of the above 
A)  Repayments of long-term debt 
B)  Investments in new plant and equipment 
C)  Dividends paid to shareholders 
D)  All of the above

Question 13

Used the following information to answer Questions.XYZ Ltd is listed on the London Stock Exchange. On 30th June the market price for each its one million shares was £2.50. The company's profit after tax was £600,000 and the directors had paid dividends of 40 pence per share.
-The price/earnings (P/E) ratio is closest to:

Accepted Answer

A)  4.2 
B)  5.5 
C)  6.0 
D)  7.2 
A)  4.2 
B)  5.5 
C)  6.0 
D)  7.2

Question 14

Use the following information to answer questions.The Balance Sheet of MNO Company shows current assets of £1,250,000; current liabilities of £900,000; non-current assets of £2,400,000; and long-term debt of £750,000.
-Total capital employed is:

Accepted Answer

A)  £1,650,000 
B)  £2,000,000 
C)  £2,750,000 
D)  £3,650,000 
A)  £1,650,000 
B)  £2,000,000 
C)  £2,750,000 
D)  £3,650,000

Question 15

Ratio analysis can interpret performance against several criteria, including:

Accepted Answer

A)  Profitability, assets and cash flows 
B)  Profitability, liquidity and gearing 
C)  Liquidity, Debt and Equity 
D)  Profits, Debt and Equity 
A)  Profitability, assets and cash flows 
B)  Profitability, liquidity and gearing 
C)  Liquidity, Debt and Equity 
D)  Profits, Debt and Equity

Question 16

Use the following information extracted from ABC's Income Statement and Balance Sheet to answer questions:Sales £4,200,000; Gross profit £2,700,000; Receivables £630,000; Payables £275,000; Inventory £300,000. ABC calculates its financial ratios based on being open for business 6 days per week for 50 weeks per year
-ABC's inventory turn was:

Accepted Answer

A)  5 
B)  7 
C)  9 
D)  14 
A)  5 
B)  7 
C)  9 
D)  14

Question 17

Used the following information to answer Questions.XYZ Ltd is listed on the London Stock Exchange. On 30th June the market price for each its one million shares was £2.50. The company's profit after tax was £600,000 and the directors had paid dividends of 40 pence per share.
-The dividend yield is closest to:

Accepted Answer

A)  6% 
B)  10% 
C)  16% 
D)  26% 
A)  6% 
B)  10% 
C)  16% 
D)  26%

Question 18

Gross margin is

Accepted Answer

A)  The difference between sales and cost of goods sold 
B)  Gross profit as a percentage of sales 
C)  Operating profit as a percentage of sales 
D)  The difference between gross profit and operating profit 
A)  The difference between sales and cost of goods sold 
B)  Gross profit as a percentage of sales 
C)  Operating profit as a percentage of sales 
D)  The difference between gross profit and operating profit

Question 19

Used the following information to answer Questions.XYZ Ltd is listed on the London Stock Exchange. On 30th June the market price for each its one million shares was £2.50. The company's profit after tax was £600,000 and the directors had paid dividends of 40 pence per share.
-The dividend payout ratio is closest to:

Accepted Answer

A)  33.3% 
B)  60% 
C)  65% 
D)  66.7% 
A)  33.3% 
B)  60% 
C)  65% 
D)  66.7%

Question 20

Sales in 2014 were £4,000,000 and in the previous year £3,750,000. Sales growth is closest to:

Accepted Answer

A)  106.25% 
B)  106.7% 
C)  6.25% 
D)  6.7% 
A)  106.25% 
B)  106.7% 
C)  6.25% 
D)  6.7%

An improvement in the acid test (or quick ratio) can best be explained by:

A company has capital employed of €1,000,000 and generates a profit after tax of €300,000. The change in return on investment between a Balance Sheet with 60% debt and one with 40% debt is:

A decrease in gross margin may best be explained by:

If asset turnover increases, this is an indicator that:

An improvement in the interest cover ratio may be best explained by:

Use the following information to answer questions.The Balance Sheet of MNO Company shows current assets of £1,250,000; current liabilities of £900,000; non-current assets of £2,400,000; and long-term debt of £750,000. -The gearing ratio is closest to:

Use the following information to answer questions.The Balance Sheet of MNO Company shows current assets of £1,250,000; current liabilities of £900,000; non-current assets of £2,400,000; and long-term debt of £750,000. -The working capital ratio is closest to:

An increase in dividend yield is most likely to be caused by:

A business has current assets of $35,000 and current liabilities of $20,000. It collects its receivables more quickly and uses $10,000 of its cash at bank to repay a long-term debt. The effect on the working capital ratio after the long-term debt is repaid is to:

The difference between ROI and ROCE ratios is due to:

The Statement of Cash Flows would identify:

Use the following information to answer questions.The Balance Sheet of MNO Company shows current assets of £1,250,000; current liabilities of £900,000; non-current assets of £2,400,000; and long-term debt of £750,000. -Total capital employed is:

Ratio analysis can interpret performance against several criteria, including:

Gross margin is

Sales in 2014 were £4,000,000 and in the previous year £3,750,000. Sales growth is closest to:

Introduction to Accounting

Accounting and Its Relationship to Shareholder Value and Corporate Governance

Recording Financial Transactions and the Principles of Accounting

Management Control, Accounting, and Its Rationaleconomic Assumptions

Interpretive and Critical Perspectives on Accounting and Decision Making

Constructing Financial Statements: IFRS and the Framework of Accounting

Accounting for Inventory

Accounting and Information Systems

Marketing Decisions

Introduction to Accounting

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Exam 7: Interpreting Financial Statements

An improvement in the acid test (or quick ratio) can best be explained by:

A company has capital employed of €1,000,000 and generates a profit after tax of €300,000. The change in return on investment between a Balance Sheet with 60% debt and one with 40% debt is:

A decrease in gross margin may best be explained by:

If asset turnover increases, this is an indicator that:

An improvement in the interest cover ratio may be best explained by:

Use the following information to answer questions.The Balance Sheet of MNO Company shows current assets of £1,250,000; current liabilities of £900,000; non-current assets of £2,400,000; and long-term debt of £750,000. -The gearing ratio is closest to:

Use the following information to answer questions.The Balance Sheet of MNO Company shows current assets of £1,250,000; current liabilities of £900,000; non-current assets of £2,400,000; and long-term debt of £750,000. -The working capital ratio is closest to:

An increase in dividend yield is most likely to be caused by:

A business has current assets of $35,000 and current liabilities of $20,000. It collects its receivables more quickly and uses $10,000 of its cash at bank to repay a long-term debt. The effect on the working capital ratio after the long-term debt is repaid is to:

The difference between ROI and ROCE ratios is due to:

The Statement of Cash Flows would identify:

Use the following information to answer questions.The Balance Sheet of MNO Company shows current assets of £1,250,000; current liabilities of £900,000; non-current assets of £2,400,000; and long-term debt of £750,000. -Total capital employed is:

Ratio analysis can interpret performance against several criteria, including:

Gross margin is

Sales in 2014 were £4,000,000 and in the previous year £3,750,000. Sales growth is closest to:

Introduction to Accounting

Accounting and Its Relationship to Shareholder Value and Corporate Governance

Recording Financial Transactions and the Principles of Accounting

Management Control, Accounting, and Its Rationaleconomic Assumptions

Interpretive and Critical Perspectives on Accounting and Decision Making

Constructing Financial Statements: IFRS and the Framework of Accounting

Accounting for Inventory

Accounting and Information Systems

Marketing Decisions

Introduction to Accounting

Filters