Question 1

The formula for gross profit margin is gross profit divided by:

Accepted Answer

A) sales. 
B) total assets. 
C) total equity. 
D) share capital + long-term loans. 
A) sales. 
B) total assets. 
C) total equity. 
D) share capital + long-term loans.

Question 2

What does financial solvency refer to the ability of an entity to do?

Accepted Answer

A) Meet its long-term obligations 
B) Earn a high rate of profit 
C) Improve sales 
D) Both A and B 
A) Meet its long-term obligations 
B) Earn a high rate of profit 
C) Improve sales 
D) Both A and B

Question 3

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.

Accepted Answer

A) ii, i, iii. 
B) iii, ii, i. 
C) iii, i, ii. 
D) i, ii, iii. 
A) ii, i, iii. 
B) iii, ii, i. 
C) iii, i, ii. 
D) i, ii, iii.

Question 4

Which of these is not an efficiency ratio?

Accepted Answer

A) Current ratio 
B) Average settlement period for accounts receivable 
C) Asset turnover period 
D) Average inventory turnover period 
A) Current ratio 
B) Average settlement period for accounts receivable 
C) Asset turnover period 
D) Average inventory turnover period

Question 5

Operating profit before interest and taxation, divided by sales × 100/1 is the formula for:

Accepted Answer

A) return on capital employed. 
B) asset turnover period. 
C) return on shareholders' funds. 
D) operating profit margin. 
A) return on capital employed. 
B) asset turnover period. 
C) return on shareholders' funds. 
D) operating profit margin.

Question 6

If current assets exceed current liabilities, the payment of accounts payable will:

Accepted Answer

A) decrease the current ratio. 
B) increase the level of cash held. 
C) increase the current ratio. 
D) None of the above 
A) decrease the current ratio. 
B) increase the level of cash held. 
C) increase the current ratio. 
D) None of the above

Question 7

If earnings per share is 30c and the market price of each share is $6, the price-earnings ratio is:

Accepted Answer

A) 20:1 
B) 10:1 
C) 5:1 
D) 25:1 
A) 20:1 
B) 10:1 
C) 5:1 
D) 25:1

Question 8

Which of these is not an advantage of a shorter inventory turnover period?

Accepted Answer

A) It means fewer funds are tied up in inventory so more are available for use in the business. 
B) It means less storage space is needed for inventory. 
C) It means that management can have the cost advantage of buying in bulk. 
D) It means that inventory is less likely to become obsolete or out of date. 
A) It means fewer funds are tied up in inventory so more are available for use in the business. 
B) It means less storage space is needed for inventory. 
C) It means that management can have the cost advantage of buying in bulk. 
D) It means that inventory is less likely to become obsolete or out of date.

Question 9

A company with a higher level of gearing will have:

Accepted Answer

A) a high liabilities/total assets ratio. 
B) a lower owners' equity/total assets ratio. 
C) a higher owners' equity/total assets ratio. 
D) Both A and B 
A) a high liabilities/total assets ratio. 
B) a lower owners' equity/total assets ratio. 
C) a higher owners' equity/total assets ratio. 
D) Both A and B

Question 10

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 11

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 $\$ 2.0010 \%$ Preference shares. 
Net profit after tax and before preference dividend $\$ 276,000$.

Accepted Answer

A) 30.0% 
B) 16.0% 
C) 20.0% 
D) 26.0% 
A) 30.0% 
B) 16.0% 
C) 20.0% 
D) 26.0%

Question 12

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 13

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

Accepted Answer

A) The availability of cash 
B) Investors expectations 
C) The need to retain funds within the business for future growth 
D) All of the above 
A) The availability of cash 
B) Investors expectations 
C) The need to retain funds within the business for future growth 
D) All of the above

Question 14

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 15

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 16

Blue Company reported: $\begin{array}{ll}
\text { Share price } & \$ 18 \
\text { Net profit } & \$ 3000 \
\text { Preference dividend } & \$ 500 \
\text { Ordinary dividend } & \$ 1000 \
\text { Issued ordinary shares } & 1000 \text { shares }
\end{array}$
- Earnings per ordinary share is:

Accepted Answer

A) $2.50 
B) $3.00 
C) $1.80 
D) $1.50 
A) $2.50 
B) $3.00 
C) $1.80 
D) $1.50

Question 17

Trendy Traders reported total sales amounting to $1 800 000 in the year 2018, of which 80% were on credit. At 31 December, customers owed $200 000. If the firm operates for 365 days a year, how long, on average, does it take to collect money from its debtors?

Accepted Answer

A) 29 days 
B) 13 days 
C) 10 days 
D) 51 days 
A) 29 days 
B) 13 days 
C) 10 days 
D) 51 days

Question 18

Sports Ltd reports the following information: $\begin{array}{lr}
\text { Net profit } & \$ 30,000 \
\text { Total assets } & 950,000 \
\text { Current liabilities } & 285,000 \
\text { Deferred liabilities } & 405,000
\end{array}$ If current assets represent 60% of total assets, Sports Ltd's current ratio is:

Accepted Answer

A) 150% 
B) 67% 
C) 200% 
D) 50% 
A) 150% 
B) 67% 
C) 200% 
D) 50%

Question 19

Blue Company reported: $\begin{array}{ll}
\text { Share price } & \$ 18 \
\text { Net profit } & \$ 3000 \
\text { Preference dividend } & \$ 500 \
\text { Ordinary dividend } & \$ 1000 \
\text { Issued ordinary shares } & 1000 \text { shares }
\end{array}$
- The price-earnings ratio per ordinary share is:

Accepted Answer

A) 1.8:1 
B) 7.2:1 
C) 5.0:1 
D) 3.0:1 
A) 1.8:1 
B) 7.2:1 
C) 5.0:1 
D) 3.0:1

Question 20

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

Accepted Answer

A) Asset turnover ratio 
B) Current ratio 
C) Interest cover ratio 
D) Profit margin ratio 
A) Asset turnover ratio 
B) Current ratio 
C) Interest cover ratio 
D) Profit margin ratio

The formula for gross profit margin is gross profit divided by:

What does financial solvency refer to the ability of an entity to do?

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.

Which of these is not an efficiency ratio?

Operating profit before interest and taxation, divided by sales × 100/1 is the formula for:

If current assets exceed current liabilities, the payment of accounts payable will:

If earnings per share is 30c and the market price of each share is $6, the price-earnings ratio is:

Which of these is not an advantage of a shorter inventory turnover period?

A company with a higher level of gearing will have:

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

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

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

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.

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:

Blue Company reported: Share price \ 18 Net profit \ 3000 Preference dividend \ 500 Ordinary dividend \ 1000 Issued ordinary shares 1000 shares - Earnings per ordinary share is:

Trendy Traders reported total sales amounting to $1 800 000 in the year 2018, of which 80% were on credit. At 31 December, customers owed $200 000. If the firm operates for 365 days a year, how long, on average, does it take to collect money from its debtors?

Sports Ltd reports the following information: Net profit \ 30,000 Total assets 950,000 Current liabilities 285,000 Deferred liabilities 405,000 If current assets represent 60% of total assets, Sports Ltd's current ratio is:

Blue Company reported: Share price \ 18 Net profit \ 3000 Preference dividend \ 500 Ordinary dividend \ 1000 Issued ordinary shares 1000 shares - The price-earnings ratio per ordinary share is:

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

Introduction to Accounting

Measuring and Reporting Financial Position

Measuring and Reporting Financial Performance

Recording Transactionsthe Journal and Ledger Accounts

Accounting Systems and Internal Control

Introduction to Limited Companies

Regulatory Framework for Companies

Measuring and Reporting Cash Flows

Corporate Social Responsibility and Sustainability Accounting

Costvolumeprofit Analysis and Relevant Costing

Full Costing

Planning and Budgeting

Capital Investment Decisions

Filters

Exam 10: Analysis and Interpretation of Financial Statements

The formula for gross profit margin is gross profit divided by:

What does financial solvency refer to the ability of an entity to do?

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.

Which of these is not an efficiency ratio?

Operating profit before interest and taxation, divided by sales × 100/1 is the formula for:

If current assets exceed current liabilities, the payment of accounts payable will:

If earnings per share is 30c and the market price of each share is $6, the price-earnings ratio is:

Which of these is not an advantage of a shorter inventory turnover period?

A company with a higher level of gearing will have:

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

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

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

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.

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:

Blue Company reported: Share price \ 18 Net profit \ 3000 Preference dividend \ 500 Ordinary dividend \ 1000 Issued ordinary shares 1000 shares - Earnings per ordinary share is:

Trendy Traders reported total sales amounting to $1 800 000 in the year 2018, of which 80% were on credit. At 31 December, customers owed $200 000. If the firm operates for 365 days a year, how long, on average, does it take to collect money from its debtors?

Sports Ltd reports the following information: Net profit \ 30,000 Total assets 950,000 Current liabilities 285,000 Deferred liabilities 405,000 If current assets represent 60% of total assets, Sports Ltd's current ratio is:

Blue Company reported: Share price \ 18 Net profit \ 3000 Preference dividend \ 500 Ordinary dividend \ 1000 Issued ordinary shares 1000 shares - The price-earnings ratio per ordinary share is:

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

Introduction to Accounting

Measuring and Reporting Financial Position

Measuring and Reporting Financial Performance

Recording Transactionsthe Journal and Ledger Accounts

Accounting Systems and Internal Control

Introduction to Limited Companies

Regulatory Framework for Companies

Measuring and Reporting Cash Flows

Corporate Social Responsibility and Sustainability Accounting

Costvolumeprofit Analysis and Relevant Costing

Full Costing

Planning and Budgeting

Capital Investment Decisions

Filters