32
Analysis of published
accounts
Multiple-choice questions
1
The inventory (stock) turnover ratio is a:
a financial efficiency ratio
b profitability ratio
c liquidity ratio
d gearing ratio.
2
Which ratio is referred to as the ‘primary efficiency ratio’?
a net profit margin
b acid test
c price earnings ratio
d return on capital employed
3
A ratio that concerns a business’s reliance on long-term debt finance is called a:
a financial efficiency ratio
b profitability ratio
c liquidity ratio
d gearing ratio.
4–7 relate to the information in the following table.
Business
X
Sales
($000s)
Net
profit
($000s)
Inventories
($000s)
Shareholder
equity
($000s)
Noncurrent
liabilities
($000s)
134
12
5
67
45
4
The RoCE is:
a 10.7%
b 9%
c 40.2%
d 17.9%.
5
The net profit margin is:
a 10.7%
b 9%
c 40.2%
d 17.9%.
Chapter 32 Multiple-choice questions
© Cambridge University Press 2010
Liquid
assets
($000s)
Current
liabilities
($000s)
3
6
1
6
The current ratio is:
a 0.5
b 0.75
c 40.2%
d 1.33.
7
Which of the following statements is true?
a The firm is highly geared, as its gearing ratio is 67.2%.
b The firm is low-geared, as its gearing ratio is 83%.
c The firm has a high proportion of debt finance, as its liquid assets are less than
its current liabilities.
d The firm is not highly geared, as its gearing ratio is 40.2%.
8
Which of the following statements about gearing is true?
a A firm that is highly geared will not be able to obtain further bank loans.
b If a business issues debentures, it will reduce its gearing.
c With high gearing, there is an increased risk of being unable to service debt.
d A low gearing ratio is an indication of a risk-taking business strategy.
9
A high inventory (stock) turnover ratio indicates that:
a The business holds inventory for a relatively short period of time.
b The business collects debts from customers quickly.
c The business does not allow credit sales.
d High levels of inventory are held.
10
Which of the following statements about return on capital employed is true?
a Raising prices will always increase its value.
b The lower its value, the greater the efficiency with which assets have been used.
c It is calculated using the retained profit figure for the firm.
d It can be compared with the cost of borrowing to assess the performance of a
firm.
Chapter 32 Multiple-choice questions
© Cambridge University Press 2010
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