Question 1

What does the inventory turnover period ratio measure?

Accepted Answer

A) the liquidity of the firm. 
B) how much the firm's current assets could decrease and still leave it able to pay its current liabilities. 
C) profitability. 
D) the average time an organisation holds inventory. 
A) the liquidity of the firm. 
B) how much the firm's current assets could decrease and still leave it able to pay its current liabilities. 
C) profitability. 
D) the average time an organisation holds inventory. D

Question 2

A firm has total assets of $900,000 and total liabilities of $400,000. There are no preference shareholders. Earnings before interest and taxes are $100,000. Interest is $21,000 and taxes are $34,000. The return on ordinary shareholders' funds is:

Accepted Answer

A) 8.0%. 
B) 12.5%. 
C) 9.0%. 
D) 3.8%. 
A) 8.0%. 
B) 12.5%. 
C) 9.0%. 
D) 3.8%. C

Question 3

The type of analysis being carried out when a company's gross profit ratio for three years is graphed and compared with the average industry gross profit ratio calculated over the same time period is:

Accepted Answer

A) parallel analysis. 
B) vertical analysis. 
C) trend analysis. 
D) gearing analysis. 
A) parallel analysis. 
B) vertical analysis. 
C) trend analysis. 
D) gearing analysis. C

Question 4

Using the formula, gearing ratio = long-term liabilities/ (shareholders' funds + long-term liabilities)× 100/1, calculate the gearing ratio from the following information. Long-term liabilities $18m, Shareholders' funds $14m.

Accepted Answer

A) 128%. 
B) 56%. 
C) 78%. 
D) 44%. 
A) 128%. 
B) 56%. 
C) 78%. 
D) 44%.

Question 5

Solvent Ltd has a quick ratio of 1.2:1 and its current liabilities amount to $200,000. If it purchased $40,000 of inventory on credit, its new quick ratio would be:

Accepted Answer

A) unable to be calculated. 
B) higher. 
C) unaffected by the transaction. 
D) lower. 
A) unable to be calculated. 
B) higher. 
C) unaffected by the transaction. 
D) lower.

Question 6

Which ratios measure the degree of risk associated with borrowing money from outsiders to finance the business?

Accepted Answer

A) liquidity ratios. 
B) investment ratios. 
C) gearing ratios. 
D) efficiency ratios. 
A) liquidity ratios. 
B) investment ratios. 
C) gearing ratios. 
D) efficiency ratios.

Question 7

Dividend yield is calculated as:

Accepted Answer

A) market price per share/dividend per share. 
B) dividend per share/market price per share. 
C) dividend/ number of issued shares. 
D) net profit/market price per share. 
A) market price per share/dividend per share. 
B) dividend per share/market price per share. 
C) dividend/ number of issued shares. 
D) net profit/market price per share.

Question 8

Which ratio is considered to be the primary measure of overall profitability as it assesses how effectively the business has used its funds?

Accepted Answer

A) return on ordinary shareholders' funds. 
B) gross profit margin. 
C) return on capital employed. 
D) operating profit margin. 
A) return on ordinary shareholders' funds. 
B) gross profit margin. 
C) return on capital employed. 
D) operating profit margin.

Question 9

Which ratios are specifically concerned with assessing the efficiency with which assets have been used by the business?

Accepted Answer

A) liquidity ratios. 
B) efficiency ratios. 
C) gearing ratios. 
D) investment ratios. 
A) liquidity ratios. 
B) efficiency ratios. 
C) gearing ratios. 
D) investment ratios.

Question 10

Which of these ratios measure returns to shareholders?

Accepted Answer

A) Earnings per share. 
B) Dividend yield. 
C) Return on ordinary shareholders' funds. 
D) All of the above. 
A) Earnings per share. 
B) Dividend yield. 
C) Return on ordinary shareholders' funds. 
D) All of the above.

Question 11

SSS Ltd has provided information from its financial statements for the year ended 30 June 2018. $$\begin{array} { l r } 
\text { Sales (all on credit) } & \$ 2,000,000 \
\text { Gross profit on sales } & 1,000,000 \
\text { Net profit } & 150,000 \
\text { Cost of sales } & 1,000,000 \
\text { Inventory at end of year } & 200,000 \
\text { Accounts receivable at end of year } & 500,000
\end{array}$$ 
-The company trades 365 days per year. The number of times SSS's inventory turned over for 2018 is:

Accepted Answer

A) 2.0 times. 
B) 5.0 times. 
C) 5.5 times. 
D) 2.2 times. 
A) 2.0 times. 
B) 5.0 times. 
C) 5.5 times. 
D) 2.2 times.

Question 12

Which of these are alternative measures of gearing?

Accepted Answer

A) Total liabilities/total assets. 
B) Total liabilities/total owners' equity. 
C) Long-term liabilities/ total owners' equity. 
D) All are alternative measures of gearing. 
A) Total liabilities/total assets. 
B) Total liabilities/total owners' equity. 
C) Long-term liabilities/ total owners' equity. 
D) All are alternative measures of gearing.

Question 13

Dividends announced during the period divided by the number of shares on issue is the formula for:

Accepted Answer

A) the dividend yield ratio. 
B) the dividend per share ratio. 
C) the dividend payout ratio. 
D) the return on dividends ratio. 
A) the dividend yield ratio. 
B) the dividend per share ratio. 
C) the dividend payout ratio. 
D) the return on dividends ratio.

Question 14

Dollar Ltd has a current ratio of 2:1. This means that:

Accepted Answer

A) there is $2 of current assets for every $1 of current liabilities. 
B) its current assets are half its current liabilities. 
C) its current assets are insufficient to meet its current liabilities. 
D) its current assets are equal to its current liabilities. 
A) there is $2 of current assets for every $1 of current liabilities. 
B) its current assets are half its current liabilities. 
C) its current assets are insufficient to meet its current liabilities. 
D) its current assets are equal to its current liabilities.

Question 15

If the price-earnings ratio is 8 times, the earnings yield is:

Accepted Answer

A) 8%. 
B) 12.5%. 
C) 80%. 
D) 10%. 
A) 8%. 
B) 12.5%. 
C) 80%. 
D) 10%.

Question 16

Which user would be interested in examining the results of the profitability and gearing ratios?

Accepted Answer

A) Shareholders. 
B) Long-term lenders. 
C) Potential investors. 
D) All of the above. 
A) Shareholders. 
B) Long-term lenders. 
C) Potential investors. 
D) All of the above.

Question 17

Calculate the return on capital employed if net profit before interest and tax is $440,000, shareholders' funds are $5,000,000 and long-term loans are $4,000,000.

Accepted Answer

A) 4.9%. 
B) 11.0%. 
C) 6.2%. 
D) 12.2%. 
A) 4.9%. 
B) 11.0%. 
C) 6.2%. 
D) 12.2%.

Question 18

Which statement concerning the average settlement period for accounts payable is correct?

Accepted Answer

A) It is always best for the business to make creditors wait for their money for as long as possible. 
B) It is best to pay accounts payable as quickly as possible. 
C) Accounts payable provide a free source of finance for a business. 
D) A change in the accounts payable turnover period of 56 days to 65 days means that accounts payable are being paid faster. 
A) It is always best for the business to make creditors wait for their money for as long as possible. 
B) It is best to pay accounts payable as quickly as possible. 
C) Accounts payable provide a free source of finance for a business. 
D) A change in the accounts payable turnover period of 56 days to 65 days means that accounts payable are being paid faster.

Question 19

U2 Ltd is considering whether to offer trade credit to A1 Ltd. The ratio from A1's accounts that will be most useful in assessing the firm's ability to repay its trade debts on time is the:

Accepted Answer

A) gearing. 
B) asset turnover period. 
C) interest cover. 
D) average settlement period for accounts payable. 
A) gearing. 
B) asset turnover period. 
C) interest cover. 
D) average settlement period for accounts payable.

Question 20

Ratios should not be used in isolation because:

Accepted Answer

A) different ratios may give contradictory messages. 
B) their behaviour is interrelated. 
C) a decision will often have a number of aspects. 
D) all of the above. 
A) different ratios may give contradictory messages. 
B) their behaviour is interrelated. 
C) a decision will often have a number of aspects. 
D) all of the above.

What does the inventory turnover period ratio measure?

A firm has total assets of $900,000 and total liabilities of $400,000. There are no preference shareholders. Earnings before interest and taxes are $100,000. Interest is $21,000 and taxes are $34,000. The return on ordinary shareholders' funds is:

The type of analysis being carried out when a company's gross profit ratio for three years is graphed and compared with the average industry gross profit ratio calculated over the same time period is:

Using the formula, gearing ratio = long-term liabilities/ (shareholders' funds + long-term liabilities)× 100/1, calculate the gearing ratio from the following information. Long-term liabilities $18m, Shareholders' funds $14m.

Solvent Ltd has a quick ratio of 1.2:1 and its current liabilities amount to $200,000. If it purchased $40,000 of inventory on credit, its new quick ratio would be:

Which ratios measure the degree of risk associated with borrowing money from outsiders to finance the business?

Dividend yield is calculated as:

Which ratio is considered to be the primary measure of overall profitability as it assesses how effectively the business has used its funds?

Which ratios are specifically concerned with assessing the efficiency with which assets have been used by the business?

Which of these ratios measure returns to shareholders?

Which of these are alternative measures of gearing?

Dividends announced during the period divided by the number of shares on issue is the formula for:

Dollar Ltd has a current ratio of 2:1. This means that:

If the price-earnings ratio is 8 times, the earnings yield is:

Which user would be interested in examining the results of the profitability and gearing ratios?

Calculate the return on capital employed if net profit before interest and tax is $440,000, shareholders' funds are $5,000,000 and long-term loans are $4,000,000.

Which statement concerning the average settlement period for accounts payable is correct?

U2 Ltd is considering whether to offer trade credit to A1 Ltd. The ratio from A1's accounts that will be most useful in assessing the firm's ability to repay its trade debts on time is the:

Ratios should not be used in isolation because:

Introduction to Accounting

Measuring and Reporting Financial Position

Measuring and Reporting Financial Performance

Introduction to Limited Companies

Regulatory Framework for Companies

Measuring and Reporting Cash Flows

Corporate Social Responsibility and Sustainability Accounting

Cost-Volume-Profit Analysis and Relevant Costing

Full Costing

Budgeting

Capital Investment Decisions

The Management of Working Capital

Financing the Business

Filters

Exam 8: Analysis and Interpretation of Financial Statements

What does the inventory turnover period ratio measure?

A firm has total assets of $900,000 and total liabilities of $400,000. There are no preference shareholders. Earnings before interest and taxes are $100,000. Interest is $21,000 and taxes are $34,000. The return on ordinary shareholders' funds is:

The type of analysis being carried out when a company's gross profit ratio for three years is graphed and compared with the average industry gross profit ratio calculated over the same time period is:

Using the formula, gearing ratio = long-term liabilities/ (shareholders' funds + long-term liabilities)× 100/1, calculate the gearing ratio from the following information. Long-term liabilities $18m, Shareholders' funds $14m.

Solvent Ltd has a quick ratio of 1.2:1 and its current liabilities amount to $200,000. If it purchased $40,000 of inventory on credit, its new quick ratio would be:

Which ratios measure the degree of risk associated with borrowing money from outsiders to finance the business?

Dividend yield is calculated as:

Which ratio is considered to be the primary measure of overall profitability as it assesses how effectively the business has used its funds?

Which ratios are specifically concerned with assessing the efficiency with which assets have been used by the business?

Which of these ratios measure returns to shareholders?

Which of these are alternative measures of gearing?

Dividends announced during the period divided by the number of shares on issue is the formula for:

Dollar Ltd has a current ratio of 2:1. This means that:

If the price-earnings ratio is 8 times, the earnings yield is:

Which user would be interested in examining the results of the profitability and gearing ratios?

Calculate the return on capital employed if net profit before interest and tax is $440,000, shareholders' funds are $5,000,000 and long-term loans are $4,000,000.

Which statement concerning the average settlement period for accounts payable is correct?

U2 Ltd is considering whether to offer trade credit to A1 Ltd. The ratio from A1's accounts that will be most useful in assessing the firm's ability to repay its trade debts on time is the:

Ratios should not be used in isolation because:

Introduction to Accounting

Measuring and Reporting Financial Position

Measuring and Reporting Financial Performance

Introduction to Limited Companies

Regulatory Framework for Companies

Measuring and Reporting Cash Flows

Corporate Social Responsibility and Sustainability Accounting

Cost-Volume-Profit Analysis and Relevant Costing

Full Costing

Budgeting

Capital Investment Decisions

The Management of Working Capital

Financing the Business

Filters