Question 1

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)   18.9%
B)   30%
C)   10%
D)   6.3%E) All of the above
F) C) and D)

Question 2

F Co had a profit of $100,000 before tax, after deducting $16,000 in interest expense. F Co's liabilities and equity total $1,000,000. Return on total assets, before interest and tax, is:

Accepted Answer

A)   9%.
B)   10%.
C)   11.6%.
D)   13%.E) B) and D)
F) None of the above

Question 3

The acid test ratio eliminates from its calculation because it is considered the least liquid of the current assets.

Accepted Answer

A)   debtors
B)   government securities
C)   inventory
D)   bank billsE) None of the above
F) A) and C)

Question 4

The adequacy of the gross profit margin depends on:

Accepted Answer

A)   selling price.
B)   buying price.
C)   total expenses.
D)   both A and BE) C) and D)
F) B) and D)

Question 5

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)   debtors turnover ratio.
B)   current ratio.
C)   acid test ratio.
D)   debt-equity ratio.E) A) and B)
F) B) and C)

Question 6

The ratios that are specifically concerned with assessing the returns and performance of shares held for investment purposes are the:

Accepted Answer

A)   investment ratios.
B)   efficiency ratios.
C)   liquidity ratios.
D)   gearing ratios.E) C) and D)
F) A) and C)

Question 7

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)   i, ii, iii
B)   iii, i, ii
C)   iii, ii, i
D)   ii, i, iiiE) None of the above
F) C) and D)

Question 8

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)   $1.0
B)   $1.10
C)   $4.40
D)   none of the above.E) B) and C)
F) A) and C)

Question 9

The ratio which is considered to be the best measure of overall profitability when judging the performance of internal management is:

Accepted Answer

A)   return on total assets.
B)   return on ordinary shareholders' funds.
C)   gross profit margin.
D)   net profit margin.E) C) and D)
F) None of the above

Question 10

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)   46 days
B)   10 days
C)   13 days
D)   29 daysE) B) and D)
F) A) and D)

Question 11

Operating cash flows ÷ current liabilities is the formula for the:

Accepted Answer

A)   repayment of long-term borrowing ratio.
B)   current ratio.
C)   cash flow from operations ratio.
D)   none of the aboveE) A) and B)
F) A) and C)

Question 12

If Line Ltd has a current ratio of 2.5:1 and current assets are $600,000, how much are the company's current liabilities?

Accepted Answer

A)   $200,000
B)   $300,000
C)   $360,000
D)   $240,000E) A) and D)
F) B) and C)

Question 13

A good benchmark to compare business performance during a given period is:

Accepted Answer

A)   competitor's performance.
B)   industry averages.
C)   past performance.
D)   all of the above.E) A) and C)
F) C) and D)

Question 14

The statement that is not correct is:

Accepted Answer

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

Question 15

Ratios should not be used in isolation because:

Accepted Answer

A)   their behaviour is inter-related.
B)   different ratios may give contradictory messages.
C)   a decision will often have a number of aspects.
D)   all of the above.E) C) and D)
F) None of the above

Question 16

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

Accepted Answer

A)   its current assets are insufficient to meet its current liabilities.
B)   there is $2 of current assets for every $1 of current liabilities.
C)   its current assets are half its current liabilities.
D)   its current assets are equal to its current liabilities.E) All of the above
F) A) and D)

Question 17

Which of these is a limitation of financial ratio analysis?

Accepted Answer

A)   Year-end data is not necessarily typical of the position during the year.
B)   Suitable yardsticks for comparisons are not always available.
C)   Ratios have a restricted vision as they only assess the past.
D)   All of the above.E) None of the above
F) A) and C)

Question 18

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

Accepted Answer

A)   the dividend payout ratio.
B)   the dividend yield ratio.
C)   the dividend per share ratio.
D)   the return on dividends ratio.E) B) and C)
F) All of the above

Question 19

The following information was extracted from the financial records of Goss Ltd for the year ended 30 June 2015:  If there are 365 trading days per year, calculate for the managing director the number of days that debtors are outstanding at 30 June 2015.

Accepted Answer

A)   114 days
B)   51 days
C)   86 days
D)   43 daysE) None of the above
F) All of the above

Question 20

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

Accepted Answer

A)   There is no adjustment for the effects of inflation.
B)   Ratios are difficult to calculate.
C)   It does not consider qualitative factors.
D)   All of the above.E) A) and C)
F) None of the above

Exam 6: Analysis and Interpretation of Financial Statements

The adequacy of the gross profit margin depends on:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Operating cash flows ÷ current liabilities is the formula for the:

Correct AnswerverifiedShow Answer

Ratios should not be used in isolation because:

Correct AnswerverifiedShow Answer

Which of these is a limitation of financial ratio analysis?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

A good benchmark to compare business performance during a given period is:

Correct AnswerverifiedShow Answer

The ratios that are specifically concerned with assessing the returns and performance of shares held for investment purposes are the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The acid test ratio eliminates from its calculation because it is considered the least liquid of the current assets.

Correct AnswerverifiedShow Answer

F Co had a profit of $100,000 before tax, after deducting $16,000 in interest expense. F Co's liabilities and equity total $1,000,000. Return on total assets, before interest and tax, is:

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

If Line Ltd has a current ratio of 2.5:1 and current assets are $600,000, how much are the company's current liabilities?

Correct AnswerverifiedShow Answer

The ratio which is considered to be the best measure of overall profitability when judging the performance of internal management is:

Correct AnswerverifiedShow Answer

The statement that is not correct is:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The following information was extracted from the financial records of Goss Ltd for the year ended 30 June 2015: If there are 365 trading days per year, calculate for the managing director the number of days that debtors are outstanding at 30 June 2015.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified