Financial Accounting Ratio Analysis Solved MCQs | Part One
1) Determine the Debtors turnover ratio if, closing debtors is Rs 40,000, Cash sales is 25% of credit sales and the excess of closing debtors over opening debtors is Rs 20,000.
a. 4 times
b. 2 times
c. 6 times
d. 8 times
ANSWER: 4 times
2) The relationship between two financial variables can be expressed in:
a. Pure ratio
b. Percentage
c. Rate or time
d. Either of the above
ANSWER: Either of the above
3) Liquid assets are determined by
a. Current assets – stock - Prepaid expenses
b. Current assets + stock + prepaid expenses
c. Current assets + Prepaid expenses
d. None of the above
ANSWER: Current assets – stock - Prepaid expenses
4) While calculating Gross Profit, if net profit is given,
a. It can be converted into gross profit by adding interest to it
b. It can be converted into Gross profit by adding indirect expenses to it
c. Both a and b
d. None of the above
ANSWER: It can be converted into gross profit by adding interest to it
5) If sales are Rs 10,00,000, sales returns are Rs 50,000, Profit Before Tax is Rs 2,00,000, Income tax is 40%, and the Net profit ratio is
a. 12.63%
b. 20%
c. 10%
d. 50%
ANSWER: 12.63%
6) The higher the ratio, the more favourable it is, doesn’t stand true for
a. Operating ratio
b. Liquidity ratio
c. Net profit ratio
d. Stock turnover ratio
ANSWER: Operating ratio
7) Given Sales is 1,20,000 and Gross Profit is 30,000, the gross profit ratio is
a. 24%
b. 25%
c. 40%
d. 44%
ANSWER: 25%
8) If the selling price is fixed 25% above the cost, the Gross Profit ratio is
a. 13%
b. 28%
c. 26%
d. 20%
ANSWER: 20%
9) Overall Profitability ratios are based on
a. Investments
b. Sales
c. Both a and b
d. None of the above
ANSWER: Investments
10) Stock is considered a liquid asset at any time it can be converted into cash immediately.
a. Yes
b. No
ANSWER: No
11) The ideal level of liquid ratio is
a. 3:3
b. 4:4
c. 5:5
d. All of the above
ANSWER: 3:3
12) Which of the following is not included in current assets?
a. Debtors
b. Stock
c. Cash at bank
d. Cash in hand
ANSWER: Stock
13) Determine the Working capital turnover ratio if the current assets are Rs 1,50,000, current liabilities are Rs 1,00,000 and the Cost of goods sold is Rs 3,00,000.
a. 5 times
b. 6 times
c. 3 times
d. 1.5 times
ANSWER: 6 times
14) Collection of debtors
a. Decreases current ratio
b. Increases current ratio
c. Has no effect on current ratio
d. None of the above
ANSWER: Decreases current ratio
15) Determine the Operating ratio, if operating expenses are Rs 60,000, Sales are Rs 9,40,000, Sales Return is Rs 40,000 and the Cost of net goods sold is Rs 6,60,000.
a. 80%
b. 15%
c. 25%
d. 11%
ANSWER: 80%
16) What will be the Gross Profit if, the total sales are Rs 2,60,000, the cost of net goods sold is Rs 2,00,000 and the sales return is Rs 10,000?
a. 13%
b. 28%
c. 26%
d. 20%
ANSWER: 20%
17) Liquidity ratios are expressed in
a. Pure ratio form
b. Percentage
c. Rate or time
d. None of the above
ANSWER: Pure ratio form
18) Return on Proprietors funds is also known as:
a. Return on net worth
b. Return on Shareholders fund
c. Return on Shareholders Investment
d. All of the above
ANSWER: All of the above
19) Determine the stock turnover ratio if the opening stock is Rs 31,000, Closing stock is Rs 29,000, Sales is Rs 3,20,000 and Gross profit ratio is 25% on sales.
a. 31 times
b. 11 times
c. 8 times
d. 32 times
ANSWER: 8 times
20) Quick ratio is 1.8:1, current ratio is 2.7:1 and current liabilities are Rs 60,000. Determine the value of a stock.
a. Rs 54,000
b. Rs 60,000
c. Rs 1,62,000
d. None of the above
ANSWER: Rs 54,000
21) The most precise test of liquidity is
a. Quick ratio
b. Current ratio
c. Absolute Liquid Ratio
d. None of the above
ANSWER: Absolute Liquid ratio
22) Debt-equity ratio is a sub-part of
a. Short-term solvency ratio
b. Long-term solvency ratio
c. Debtors turnover ratio
d. None of the above
ANSWER: Long-term solvency ratio
23) Liquid ratio is also known as
a) Quick ratio
b) Acid test ratio
c) Working capital ratio
d) Stock turnover ratio
a. A and B
b. A and C
c. B and C
d. C and D
ANSWER: A and B
24) The current ratio is stated as a crude ratio because
a. It measures only the quantity of current assets
b. It measures only the quality of current assets
c. Both a and b
d. Offerings dimension
ANSWER: It measures only the quantity of current assets
25) The ideal level of current ratio is
a. 4:2
b. 2:1
c. Both a and b
d. None of the above
ANSWER: Both a and b
26) Which ratio is considered a safe margin of solvency?
a. Liquid ratio
b. Quick ratio
c. Current ratio
d. None of the above
ANSWER: The current ratio
27) The working capital turnover ratio can be determined by:
a. (Gross Profit / Working capital)
b. (Cost of goods sold / Net sales)
c. (Cost of goods sold / Working capital)
d. None of the above
ANSWER: (Cost of goods sold / Working capital)
28) Debtors Turnover ratio is also known as
A) Receivables turnover ratio
B) Debtors velocity
C) Stock velocity
D) Payable turnover ratio
a. A and B
b. A and C
c. B and C
d. C and D
ANSWER: A and B
29) Stock velocity establishes a relationship between
a. Cost of goods sold in a given period and the average amount of inventory held during that period
b. Cost of goods sold in a given period and the average amount of stock held during that period
c. Both a and b
d. None of the above
ANSWER: Both a and b
30) The lower turnover ratio highlights the underutilization of the resources accessible at the disposal of the firm.
a. True
b. False
ANSWER: True
31) Turnover ratios are also known as
a. Activity ratios
b. Performance ratios
c. Both a and b
d. None of the above
ANSWER: Both a and b
32) While calculating Earnings per share, if both equity and preference share capitals are there, then
a. Preference share is deducted from the net profit
b. Equity share capital is deducted from the net profit
c. Both a and b
d. None of the above
ANSWER: Preference share is deducted from the net profit
33) Return on equity capital is calculated based on:
a. Funds of equity shareholders
b. Equity capital only
c. Either a or b
d. None of the above
ANSWER: Either a or b
34) Which of the following is an expense ratio?
A) Administrative expenses ratio
B) Selling and Distribution expenses ratio
C) Factory expenses ratio
D) Finance Expenses ratio
a. A, B and D
b. A, C and D
c. A, B and C
d. A, B, C, D
ANSWER: A, B, C, D
35) Operating ratio is calculated by
a. (Operating Cost / Gross sales) * 100
b. (Operating Cost / Gross sales) * 100
c. (Operating cost / Net sales) * 100
d. None of the above
ANSWER: (Operating cost / Net sales) * 100
36) Net operating profit ratio determines ___________ while net profit ratio determines
a. Overall efficiency of the business, working efficiency of the management
b. Working efficiency of the management, overall efficiency of the business
c. The overall efficiency of the external market, working efficiency of the internal management
d. None of the above
ANSWER: Working efficiency of the management, overall efficiency of the business
37) If sales are Rs 5,00,000 and net profit is Rs 1,20,000 Net Profit ratio is
a. 24%
b. 416%
c. 60%
d. None of the above
ANSWER: 24%
38) Net Profit ratio is calculated by
a. (Gross Profit / Gross sales) * 100
b. (Gross Profit / Net sales) * 100
c. (Net Profit / Net sales) * 100
d. None of the above
ANSWER: (Net Profit / Net sales) * 100
39) The Gross Profit ratio should be adequate to cover
a. Selling expenses
b. Administrative expenses
c. Dividends
d. All of the above
ANSWER: All of the above
40) Gross profit ratio is calculated by
a. (Gross Profit / Gross sales) * 100
b. (Gross Profit / Net sales) * 100
c. (Net Profit / Gross sales) * 100
d. None of the above
ANSWER: (Gross Profit / Net sales) * 100
41) While calculating the Gross Profit ratio,
a. Closing stock is deducted from the cost of goods sold
b. Closing stock is added to the cost of goods sold
c. Closing stock is ignored
d. None of the above
ANSWER: The closing stock is deducted from the cost of goods sold
42) Gross Profit ratio is also termed as
a. Gross Profit Margin
b. Gross Margin to net sales
c. Both a and b
d. All of the above
ANSWER: Both a and b
43) General Profitability ratios are based on
a. Investments
b. Sales
c. Both A & B
d. None of the above
ANSWER: Sales
44) Which of the following falls under Profitability ratios?
A) General Profitability ratios
B) Overall Profitability ratios
C) Comprehensive Profitability ratios
a. A and B
b. A and C
c. B and C
d. None of the above
ANSWER: A and B
45) Which of the following are the limitations of ratio analysis?
A) Ratio analysis may result in false results if variations in price levels are not considered.
B) Ratio analysis ignores qualitative factors.
C) Ratio Analysis ignores quantitative factors.
D) Ratio Analysis is a historical analysis.
a. A, B and D
b. A, C and D
c. A, B and C
d. A, B, C, D
ANSWER: A, B and D
46) Profit for the objective of calculating a ratio may be taken as
a. Profit before tax but after interest
b. Profit before interest and tax
c. Profit after interest and tax
d. All of the above
ANSWER: All of the above
47) The ratio analysis is helpful to management in making several decisions, but as a mechanical substitute for judgment and thinking, it is worse than useless.
a. True
b. False
ANSWER: True
48) Which of the following statements are true about Ratio Analysis?
A) Ratio analysis is useful in financial analysis.
B) Ratio analysis is helpful in communication and coordination.
C) Ratio Analysis is not helpful in identifying weak spots of the business.
D) Ratio Analysis is helpful in financial planning and forecasting.
a. A, B and D
b. A, C and D
c. A, B and C
d. A, B, C, D
ANSWER: A, B and D
49) The definition, “The term accounting ratio is used to describe the significant relationship which exists between figures shown in a balance sheet, in a profit and loss account, in a budgetary control system or in any part of the accounting organization” is given by
a. Biramn and Dribin
b. Lord Keynes
c. J. Betty
d. None of the above
ANSWER: J. Betty
50) When the concept of ratio is defined to the items shown in the financial statements, it is termed as
a. Accounting ratio
b. Financial ratio
c. Costing ratio
d. None of the above
ANSWER: Accounting ratio
