Question 1

Profit before finance costs and taxation/average total assets is the formula for:

Accepted Answer

A)  earnings per share. 
B)  profit margin. 
C)  return on total assets. 
D)  dividend yield. 
A)  earnings per share. 
B)  profit margin. 
C)  return on total assets. 
D)  dividend yield. C

Question 2

An increase in the inventory turnover ratio is normally considered to be favourable but could be unfavourable if it means:

Accepted Answer

A)  inventory is less likely to become obsolete. 
B)  liquidity is greater. 
C)  the firm not carrying enough inventory to meet its customer's needs. 
D)  storage costs of inventory are lower. 
A)  inventory is less likely to become obsolete. 
B)  liquidity is greater. 
C)  the firm not carrying enough inventory to meet its customer's needs. 
D)  storage costs of inventory are lower. C

Question 3

Ratios are normally divided into three general groups, which of these is not one of those groups?

Accepted Answer

A)  Profitability ratios 
B)  Liability ratios 
C)  Liquidity ratios 
D)  Financial stability ratios 
A)  Profitability ratios 
B)  Liability ratios 
C)  Liquidity ratios 
D)  Financial stability ratios B

Question 4

Making Moves has the following data available.  
Using vertical analysis, express selling expenses as a percentage of the base amount.

Accepted Answer

A)  60% 
B)  50% 
C)  20% 
D)  15% 
A)  60% 
B)  50% 
C)  20% 
D)  15%

Question 5

Vertical analysis of a balance sheet usually:

Accepted Answer

A)  calculates each balance sheet item as a percentage of sales. 
B)  calculates each balance sheet item as a percentage of total assets (funds). 
C)  calculates each balance sheet item as a percentage of the bank balance. 
D)  calculates each balance sheet item as a percentage of share capital. 
A)  calculates each balance sheet item as a percentage of sales. 
B)  calculates each balance sheet item as a percentage of total assets (funds). 
C)  calculates each balance sheet item as a percentage of the bank balance. 
D)  calculates each balance sheet item as a percentage of share capital.

Question 6

A company has a current ratio of 3:1. Which action will decrease this ratio?

Accepted Answer

A)  Issue of long-term debentures 
B)  Sale of equipment for cash 
C)  Declaration of a dividend 
D)  Collection of an account receivable 
A)  Issue of long-term debentures 
B)  Sale of equipment for cash 
C)  Declaration of a dividend 
D)  Collection of an account receivable

Question 7

Annual dividend per ordinary share divided by market price per ordinary share measures:

Accepted Answer

A)  dividend yield. 
B)  dividend per share. 
C)  dividend payout ratio. 
D)  earnings per share. 
A)  dividend yield. 
B)  dividend per share. 
C)  dividend payout ratio. 
D)  earnings per share.

Question 8

Which of these are sources of financial information about companies?
I. Published financial statements (annual reports)
II. The Internet
III. The Stock Exchange
IV. Financial newspapers and journals
V. Financial advisory services

Accepted Answer

A)  I, III, IV, V 
B)  II, III, IV, V 
C)  I, II, III, IV 
D)  I, II, III, IV, V 
A)  I, III, IV, V 
B)  II, III, IV, V 
C)  I, II, III, IV 
D)  I, II, III, IV, V

Question 9

The formula for the profit margin ratio is:

Accepted Answer

A)  revenue/profit. 
B)  profit after tax/total assets. 
C)  profit after tax/revenues. 
D)  gross profit/net sales. 
A)  revenue/profit. 
B)  profit after tax/total assets. 
C)  profit after tax/revenues. 
D)  gross profit/net sales.

Question 10

Which statement concerning the current (working capital) ratio is incorrect?

Accepted Answer

A)  A low current ratio may indicate difficulty in meeting short-term commitments. 
B)  The current ratio can be manipulated at balance date, 
C)  A high current ratio may indicate excessive investment in working capital. 
D)  A current ratio of $1.50 of current assets for each $1 of current liabilities should always be maintained. 
E) g. by using cash to pay off short-term debt. 
A)  A low current ratio may indicate difficulty in meeting short-term commitments. 
B)  The current ratio can be manipulated at balance date, 
C)  A high current ratio may indicate excessive investment in working capital. 
D)  A current ratio of $1.50 of current assets for each $1 of current liabilities should always be maintained. 
E) g. by using cash to pay off short-term debt.

Question 11

Financial stability refers to the ability of an entity to:

Accepted Answer

A)  meet its long-term obligations. 
B)  pay its regular obligations. 
C)  earn a high rate of profit. 
D)  pay its rent. 
A)  meet its long-term obligations. 
B)  pay its regular obligations. 
C)  earn a high rate of profit. 
D)  pay its rent.

Question 12

Which statement is incorrect?

Accepted Answer

A)  Dividend yield measures the rate of return on the market price of a share. 
B)  The dividend payout ratio measures the percentage of profit paid out in dividends to ordinary shareholders. 
C)  Dividend per share is the ratio to use when comparing income from shares with income from alternative investments. 
D)  Dividend yield is an important ratio for an investor who is acquiring shares mainly for income. 
A)  Dividend yield measures the rate of return on the market price of a share. 
B)  The dividend payout ratio measures the percentage of profit paid out in dividends to ordinary shareholders. 
C)  Dividend per share is the ratio to use when comparing income from shares with income from alternative investments. 
D)  Dividend yield is an important ratio for an investor who is acquiring shares mainly for income.

Question 13

Kaplan has a current ratio of 2.5 to 1 and current liabilities of $12 000. If Kaplan has $9000 of inventory what is the quick ratio?

Accepted Answer

A)  2.25 to 1 
B)  2.00 to 1 
C)  1.75 to 1 
D)  1.50 to 1 
A)  2.25 to 1 
B)  2.00 to 1 
C)  1.75 to 1 
D)  1.50 to 1

Question 14

Which statement about capital market research and financial statement analysis is correct?

Accepted Answer

A)  If share markets are inefficient financial analysis is of little use to investors. 
B)  Analysts relying on financial statement analysis assume that share markets are inefficient. 
C)  The evidence of share market research on the efficiency of the market is conclusive. 
D)  Little research has been carried out as to whether share markets are efficient or not. 
A)  If share markets are inefficient financial analysis is of little use to investors. 
B)  Analysts relying on financial statement analysis assume that share markets are inefficient. 
C)  The evidence of share market research on the efficiency of the market is conclusive. 
D)  Little research has been carried out as to whether share markets are efficient or not.

Question 15

Which P/E ratios and earnings yields do not match?

Accepted Answer

A)  P/E ratio 5; earnings yield 20% 
B)  P/E ratio 8; earnings yield 12.5% 
C)  P/E ratio 9; earnings yield 12 % 
D)  P/E ratio 10; earnings yield 10% 
A)  P/E ratio 5; earnings yield 20% 
B)  P/E ratio 8; earnings yield 12.5% 
C)  P/E ratio 9; earnings yield 12 % 
D)  P/E ratio 10; earnings yield 10%

Question 16

Cash flows from operating activities divided by (repayments of long-term borrowings + assets acquired + dividends paid) is the formula for:

Accepted Answer

A)  cash flow adequacy ratio. 
B)  repayment of long-term borrowing ratio. 
C)  debt coverage ratio. 
D)  operations index. 
A)  cash flow adequacy ratio. 
B)  repayment of long-term borrowing ratio. 
C)  debt coverage ratio. 
D)  operations index.

Question 17

Dividend yield on ordinary shares is calculated as:

Accepted Answer

A)  market price/dividend per share. 
B)  dividend per share/market price per share. 
C)  annual dividend/earnings. 
D)  annual dividend/number of ordinary shares. 
A)  market price/dividend per share. 
B)  dividend per share/market price per share. 
C)  annual dividend/earnings. 
D)  annual dividend/number of ordinary shares.

Question 18

What is the formula for receivables (debtors) turnover in times per annum?

Accepted Answer

A)  Net sales revenue/average receivables balance 
B)  Average receivables balance/net sales revenue 
C)  365/net sales 
D)  Net sales revenue/total assets 
A)  Net sales revenue/average receivables balance 
B)  Average receivables balance/net sales revenue 
C)  365/net sales 
D)  Net sales revenue/total assets

Question 19

Which statement relating to the debt ratio of a company is not true?

Accepted Answer

A)  It can be calculated by relating liabilities to total funds. 
B)  It is an indicator of a company's long-term solvency. 
C)  It is a measure of the extent of a company's gearing. 
D)  A higher level of debt is normally preferable from a creditor's point of view. 
A)  It can be calculated by relating liabilities to total funds. 
B)  It is an indicator of a company's long-term solvency. 
C)  It is a measure of the extent of a company's gearing. 
D)  A higher level of debt is normally preferable from a creditor's point of view.

Question 20

Which statement concerning the cash flow adequacy ratio is not correct?

Accepted Answer

A)  The ratio assesses the entity's ability to generate sufficient operating cash flow to cover its main cash requirements. 
B)  The main requirements for cash from operations is to pay debts, acquire assets and pay dividends. 
C)  A ratio of 100% or more over several years indicates an inadequate ability to general operating cash to cover requirements. 
D)  A fall in the ratio indicates a lower ability to generate operating cash to meet requirements. 
A)  The ratio assesses the entity's ability to generate sufficient operating cash flow to cover its main cash requirements. 
B)  The main requirements for cash from operations is to pay debts, acquire assets and pay dividends. 
C)  A ratio of 100% or more over several years indicates an inadequate ability to general operating cash to cover requirements. 
D)  A fall in the ratio indicates a lower ability to generate operating cash to meet requirements.

Exam 25: Analysis and Interpretation of Financial Statements

Profit before finance costs and taxation/average total assets is the formula for:

An increase in the inventory turnover ratio is normally considered to be favourable but could be unfavourable if it means:

Ratios are normally divided into three general groups, which of these is not one of those groups?

Making Moves has the following data available. Using vertical analysis, express selling expenses as a percentage of the base amount.

Vertical analysis of a balance sheet usually:

A company has a current ratio of 3:1. Which action will decrease this ratio?

Annual dividend per ordinary share divided by market price per ordinary share measures:

Which of these are sources of financial information about companies? I. Published financial statements (annual reports) II. The Internet III. The Stock Exchange IV. Financial newspapers and journals V. Financial advisory services

The formula for the profit margin ratio is:

Which statement concerning the current (working capital) ratio is incorrect?

Financial stability refers to the ability of an entity to:

Which statement is incorrect?

Kaplan has a current ratio of 2.5 to 1 and current liabilities of $12 000. If Kaplan has $9000 of inventory what is the quick ratio?

Which statement about capital market research and financial statement analysis is correct?

Which P/E ratios and earnings yields do not match?

Cash flows from operating activities divided by (repayments of long-term borrowings + assets acquired + dividends paid) is the formula for:

Dividend yield on ordinary shares is calculated as:

What is the formula for receivables (debtors) turnover in times per annum?

Which statement relating to the debt ratio of a company is not true?

Which statement concerning the cash flow adequacy ratio is not correct?

Decision Making and the Role of Accounting

Financial Statements for Decision Making

Recording Transactions

Adjusting the Accounts and Preparing Financial Statements

Completing the Accounting Cycle Closing and Reversing Entries

Accounting for Retailing

Accounting for Systems

Accounting for Manufacturing

Cost Accounting Systems

Cash Management and Control

Cost-Volume-Profit Analysis for Decision Making

Budgeting for Planning and Control

Performance Evaluation for Managers

Differential Analysis, Profitability Analysis and Capital Budgeting

Partnerships: Formation, Operation and Reporting

Companies: Formation and Operations

Regulation and the Conceptual Framework

Receivables

Inventories

Non-Current Assets: Acquisition and Depreciation

Non-Current Assets: Revaluation, Disposal and Other Aspects

Liabilities

Presentation of Financial Statements

Statement of Cash Flows

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