Question 1

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. B

Question 2

Which statement is not correct?

Accepted Answer

A)  A business will prefer a shorter settlement time for its accounts receivable rather than a longer settlement period.
B)  An asset turnover figure of 1.5 times is preferred to a figure of 1.2 times.
C)  A business will prefer a longer average inventory turnover time rather than a shorter turnover time.
D)  None of the statements, i.e., all are correct C

Question 3

Which of these is not considered a limitation of financial ratio analysis?

Accepted Answer

A)  Ratios are difficult to calculate.
B)  It does not consider qualitative factors.
C)  There is no adjustment for the effects of inflation.
D)  All of the above A

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

On what does the adequacy of the gross profit margin depend?

Accepted Answer

A)  Selling price
B)  Buying price
C)  Total expenses
D)  Both A and B

Question 9

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

Accepted Answer

A)  Operating profit ratio
B)  Current ratio
C)  Quick ratio
D)  Acid test ratio

Question 10

Use this data to calculate earnings per ordinary share (EPS)for Orange Ltd. Market price for each Orange Ltd share$\quad$$ \$ 7.80 $
Net Profit (after interest, tax)$\quad$$\quad$$\quad$$\quad$$ \$ 6400 $
Number of ordinary shares issued$\quad$$\quad$$\quad$15000

Accepted Answer

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

Question 11

The incorrect statement concerning financial ratios is:

Accepted Answer

A)  A ratio expresses the relationship between two figures appearing in the financial statements.
B)  Ratios are easy to interpret but difficult to calculate.
C)  Ratios adjust for scale of operations and allow comparisons between businesses of different sizes.
D)  None of the above, i.e., all are true statements

Question 12

If earnings per share is 85c, dividend per share is 50c, and the market price of each share is $9.35, the price-earnings ratio is:

Accepted Answer

A)  18.7:1
B)  11:1
C)  9:1
D)  5:1

Question 13

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:

Accepted Answer

A)  25%
B)  8%
C)  12.5%
D)  9%

Question 14

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

Accepted Answer

A)  Liquidity ratios
B)  Gearing ratios
C)  Investment ratios
D)  Efficiency ratios

Question 15

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 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

Question 17

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:

Accepted Answer

A)  10 times.
B)  2.0 times.
C)  2.5 times.
D)  20 times.

Question 18

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

Accepted Answer

A)  5.0 times.
B)  1.8 times.
C)  3.8 times.
D)  4.0 times.

Question 19

SSS Ltd has provided information from its financial statements for the year ended 30 June 2018. $\begin{array}{ll}
\text { Sales (all on credit) } & \$ 2,000,000 \
\text { Gross profit on sales } & 1,000,000 \
\text { Net profit } & 150,000 \
\text { Cost of sales } & 1,000,000 \
\text { Inventory at end of year } & 200,000 \
\text { Accounts receivable at end of year } & 500,000
\end{array}$ 
-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.

Question 20

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

Exam 10: Analysis and Interpretation of Financial Statements

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

Which statement is not correct?

Which of these is not considered a limitation of financial ratio analysis?

Ratios should not be used in isolation because:

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

What does the inventory turnover period ratio measure?

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

On what does the adequacy of the gross profit margin depend?

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

Use this data to calculate earnings per ordinary share (EPS) for Orange Ltd. Market price for each Orange Ltd share $\quad$ $\$ 7.80$ Net Profit (after interest, tax) $\quad$ $\quad$ $\quad$ $\quad$ $\$ 6400$ Number of ordinary shares issued $\quad$ $\quad$ $\quad$ 15000

The incorrect statement concerning financial ratios is:

If earnings per share is 85c, dividend per share is 50c, and the market price of each share is $9.35, the price-earnings ratio is:

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:

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

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:

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

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:

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?

Exam 10: Analysis and Interpretation of Financial Statements

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

Which statement is not correct?

Which of these is not considered a limitation of financial ratio analysis?

Ratios should not be used in isolation because:

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

What does the inventory turnover period ratio measure?

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

On what does the adequacy of the gross profit margin depend?

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

Use this data to calculate earnings per ordinary share (EPS) for Orange Ltd. Market price for each Orange Ltd share \quad$7.80 \$ 7.80 $7.80 Net Profit (after interest, tax) \quad\quad\quad\quad$6400 \$ 6400 $6400 Number of ordinary shares issued \quad\quad\quad 15000

The incorrect statement concerning financial ratios is:

If earnings per share is 85c, dividend per share is 50c, and the market price of each share is $9.35, the price-earnings ratio is:

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:

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

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:

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

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:

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?

Use this data to calculate earnings per ordinary share (EPS) for Orange Ltd. Market price for each Orange Ltd share $\quad$ $\$ 7.80$ Net Profit (after interest, tax) $\quad$ $\quad$ $\quad$ $\quad$ $\$ 6400$ Number of ordinary shares issued $\quad$ $\quad$ $\quad$ 15000