Exam 8: Analysis and Interpretation of Financial Statements

Place the key steps in financial ratio analysis in order of occurrence. i)Select the ratios considered appropriate and carry out the calculations. Ii)Interpret and evaluate what the ratios reveal. Iii)Identify the users and their information needs.

Because a company's inventory is less liquid than its other current assets when investors are assessing liquidity, they should examine the:

What does the acid test ratio eliminate from its calculation, because it is considered the least liquid of the current assets?

If gross profit is $500,000, interest expense is $200,000, sales is $1,900,000 and total assets are $5,400,000, calculate the gross profit margin.

Why is interest added back to profit before tax when calculating return on total assets?

Which ratios are specifically concerned with assessing the returns and performance of shares held for investment purposes?

Blue Company reported: Share price \ 18 Net profit \ 3,000 Preference dividend \ 500 Ordinary dividend \ 1,000 Issued ordinary shares 1,000 shares The price-earnings ratio per ordinary share is:

Which of these ratios is not directly relevant to the evaluation of a company's short-term liquidity position?

The current market price of Fixit Ltd's ordinary shares is $5.00 each. If the latest earnings per share is $0.50, the company's price-earnings ratio is:

The incorrect statement concerning financial ratios is:

The following information was extracted from the financial records of Ross Ltd for the year ended 30 June 2018: Cash Sales \ 50,000 Credit Sales 200,000 Accounts receivable 25,000 Cost of Sales 130,000 If there are 365 trading days per year, calculate for the managing director the number of days that accounts receivable are outstanding at 30 June 2018.

Success Ltd has a price-earnings ratio of 5 and earnings per share of 22 cents. Its issued capital consists of 2,000,000 $1 ordinary shares. The market price per share is:

Trendy Ltd's net profit after tax was $1,200 and its interest expense was $400. Assuming corporate tax is $400, what is the company's interest cover ratio?

Which of these is a factor that can influence the amount a company is prepared to distribute as dividends to its shareholders?

Dividend yield on ordinary shares is calculated as:

From the following information, calculate Todd Ltd's rate of return on ordinary shareholders' funds. Ordinary share capital $600,000. Retained profits and reserves $200,000. 180,000 fully paid $2.00 10% Preference shares. Net profit after tax and before preference dividend $276,000.

What does the current ratio measure?

A firm has total assets of $800,000 and total liabilities of $200,000. If profit after tax and interest is $150,000, the return on shareholders' funds is:

What ratio helps to measure the risk involved in financing a business with borrowed funds?

Which of these is a limitation of financial ratio analysis?