Question 1

Using the information below find the average inventory turnover for Vox Ltd in days.
$$\begin{array} { l r } 
\text { Sales } & \$ 1,800,000 \
\text { Cost of sales } & 1,200,000 \
\text { Stock on hand start } & 360,000 \
\text { Stock on hand end } & 312,000
\end{array}$$

Accepted Answer

A)   102.2 days.
B)   63.26 days.
C)   94.8 days.
D)   68 days.  A

Question 2

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. D

Question 3

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:

Accepted Answer

A)   $1.10.
B)   $1.00.
C)   $4.40.
D)   none of the above. A

Question 4

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.

Question 5

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?

Accepted Answer

A)   1.8.
B)   3.0.
C)   5.0.
D)   1.2.

Question 6

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D)   It means that inventory is less likely to become obsolete or out of date.

Question 7

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.

Question 8

Trendy Traders reported total sales amounting to $1,000,000 in the year 2015,of which 80% were on credit.At 31 December,customers owed $100,000.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)   46 days.

Question 9

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

Accepted Answer

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

Question 10

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

Accepted Answer

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

Question 11

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)   do none of the above.

Question 12

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.

Question 13

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.

Question 14

A firm has total assets of $800,000 and total liabilities of $300,000.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%.

Question 15

Which of these is not an advantage of using borrowed funds to finance a business?

Accepted Answer

A)   Interest on borrowings is tax deductible.
B)   Borrowing can be used to boost returns to owners, as long as the return on the funds exceeds the cost of interest.
C)   Lenders do not dilute ownership interest in the business.
D)   Interest on borrowing is a legal commitment that must be met.

Question 16

If gross profit is $540,000,interest expense is $200,000,sales is $1,800,000 and total assets are $5,400,000,calculate the gross profit margin.

Accepted Answer

A)   6.3%.
B)   18.9%.
C)   30%.
D)   10%.

Question 17

Use this data to calculate earnings per ordinary share (EPS)for Orange Ltd.
$$\begin{array} { l r } 
\text { Market price for each Orange Ltd share } & \$ 7,80 \
\text { Net Profit (after interest, tax) } & \$ 6,400 \
\text { Number of ordinary shares issued } & 15,000
\end{array}$$

Accepted Answer

A)   $0.19.
B)   $0.43.
C)   $0.39.
D)   $0.61.

Question 18

Dividend yield on ordinary shares is calculated as:

Accepted Answer

A)   dividends per share divided by market price per share
B)   annual dividend divided by issued capital.
C)   annual dividend divided by earnings.
D)   none of the above.

Question 19

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

Accepted Answer

A)   debt-equity ratio.
B)   accounts receivable turnover ratio.
C)   acid test ratio.
D)   current ratio.

Question 20

$\text { Brad's Engineering Pty Ltd }$
$\begin{array}{lll}&2015&2014\
\text { Statement of financial positions as at } 30 \text { June }&\$&\$\
\text { Total Current Assets } & 11,080 & 10,280 \
\text { Total Fixed Assets } & 75,000 & 42,000\\text { TOTAL ASSETS }&\$86,080&\$52,280\\text { Total Current Liabilities } & 3,400 & 1,960 \
\text { Long-term Liabilities } & \underline{20,000} & 8,500 \\text { TOTAL LIABILITIES }&\$23,400&\$10,460\\\text { NET ASSETS (Assets - Liabilities) } & \$ 62,680 & \$ 41,820 \\
\text { SHAREHOLDERS' EQUITY } & & \
\text { Share capital } & 40000 & 30000 \
\text { Reserves and retained profits } & 22,680 & 11,820\&\$62,60&\$41,820\\\text { Additional Information: }\& 2015 & 2014 \
\text { Net profit after interest \& tax } & \$ 10,860 & \$ 6,000 \
\text { Interest expense } & 2,000 & 900 \
\text { Taxation expense } & 3,000 & 1,500
\end{array}$ 
REQUIRED:
a)From the information provided above,calculate each of the following ratios for each of the years ending 30 June 2014 and 2015.
Gearing ratio.Use formula
 $\frac{\text {Long term liabilities }}{\text { Share capital and reserves + long term liabilities}}$ 
Interest cover ratio.Use formula
 $\frac{\text {Profit before interest and tax }}{\text {Interest }}$ 
b)Comment on the movements in the ratios over the two years and the adequacy of the level of gearing and interest cover.

Accepted Answer

The answer of $\text { Brad's Engineering Pty Ltd }$
\(\begin{array}{lll}&2015&2014\
\text...

Exam 8: Analysis and Interpretation of Financial Statements

Using the information below find the average inventory turnover for Vox Ltd in days. $\begin{array} { l r } \text { Sales } & \$ 1,800,000 \\\text { Cost of sales } & 1,200,000 \\\text { Stock on hand start } & 360,000 \\\text { Stock on hand end } & 312,000\end{array}$