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Statement Analysis Tools and Accounting Ratios Test - 11

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Statement Analysis Tools and Accounting Ratios Test - 11
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Weekly Quiz Competition
  • Question 1
    1 / -0
    If stock turnover ratio is $$4$$ times and the collection period is $$30$$ days, the operating cycle would be _________.
    Solution

  • Question 2
    1 / -0
    Inventory turnover in days $$=$$ Days during the period $$\div$$ __________.
    Solution
    Inventory turnover in days depicts the frequency of days in which an inventory is sold in a particular period of time.
    Inventory turnover ratio may be calculated as:

    Cost of Good sold divided by Average Inventory
    Inventory turnover in days= No of days divided by inventory turnover ratio.
  • Question 3
    1 / -0
    Money in hand along with raw materials is known as ______.
  • Question 4
    1 / -0
    ________________ costs of borrowing increase the debt-burden.
  • Question 5
    1 / -0
    In current ratio, current assets are compared with _________.
    Solution
    The current ratio gives idea to the company's ability to payback its liabilities (debts & accounts payable) with its assets(cash,marketable securities,accounts receivable). As such, current ratio can be used to make a rough estimate of a company's financial health and its liquidity.
  • Question 6
    1 / -0
    Activity (or Turnover) Ratios comprises of all except ____________.
    Solution
    Activity or Turnover Ratios exhibit the activity levels characterised by the capacity of the business to make more sales or turnover. These shall comprise following:
    1. Stock Turnover
    2.Debtors Turnover
    3.Creditors Turnover
    4.Investment Turnover
    5.Fixed Assets Turnover
    6.Working Capital Turnover
  • Question 7
    1 / -0
    The excess of current assets over current liabilities is called as ___________.
    Solution
    The formula for calculation of "Net working capital" is as follows:
    Net working capital = Total current assets - Total current liabilities
    Net working capital is the aggregate amount of all current assets minus current liabilities. It is used to measure the short-term liquidity of a business, and can also be used to obtain a general impression of the ability of a company management to utilize assets in an efficient manner.
  • Question 8
    1 / -0
    Inventory turnover ratio $$=$$ Cost of goods sold $$\div$$ Cost of ______________ held during the period.
    Solution
    The turnover ratios exhibit the activity levels characterized by the capacity of the business to make more sales or turnover. The activity ratios express the number of times assets employed, or, for  that matter, any constituent of assets, is turned into sales during an accounting period. Higher turnover ratio means better utilization of assets and signifies improved efficiency and profitability, and as such are known as efficiency ratios. Inventory turnover ratio determines the number of times stock is turned into sales during the accounting period under consideration. It expresses the relationship between the cost of goods sold and stock of goods. The formula for calculation is:
    Inventory turnover ratio = Cost of Goods Sold/Average Stock
    Where average stock refers to arithmetic average of opening and closing stock, and the cost of goods sold means sales less gross profit.
    It studies the frequency of conversion of stock finished goods into sales. It is also a measure of liquidity. It determines how many times stock is purchased or replaced during a year. Low turnover of stock may be due to bad buying, obsolete stock, etc. and is a danger signal. High turnover is good but it must be interpreted as it may be due to buying in small lots or selling quickly at low margin to realize cash. It also throws light on utilization of stock of goods.
  • Question 9
    1 / -0
    Return on investment may be improved by ________.
    Solution
    Return on investment measures the gain or loss generated on an investment relative to the amount of money invested. It is usually expressed as percentage & is typically used for personal financial decisions, to compare company's profitability or to compare efficiency of different investments.
  • Question 10
    1 / -0
    Inventory turnover measures the relationship of inventory with _______.
    Solution
    Inventory turnover ratio shows how many times a company's inventory is sold and replaced over a period of time. It is an efficiency ratio. The equation for inventory turnover equals the cost of goods sold divided by the average inventory.
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