Statement Analysis Tools and Accounting Ratios Test

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Statement Analysis Tools and Accounting Ratios Test - 12

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Weekly Quiz Competition

Question 1
1 / -0

Which of the following statements is correct?

A
A higher receivable turnover is not desirable

B
Interest coverage ratio depends upon tax rate

C
Increase in net profit ratio means increase in sales

D
Lower Debt-Equity ratio means lower financial risk

Solution

Debt Equity ratio is calculated by dividing company's total liabilities by its stockholder's equity, is a debt ratio used to measure a company's financial leverage.
Question 2
1 / -0

Which of the following helps analyzing return to equity shareholders?

A
Return on Assets

B
Earnings per Share

C
Net Profit Ratio

D
Return on Investment

Solution

Earnings per share is calculated by dividing company's net income by total number of outstanding shares. The higher the earnings per share the better is the profitability .
Question 3
1 / -0

Debt to total assets of a firm is 0.2. The debt to equity ratio would be _______.

A
0.80

B
0.25

C
1.00

D
0.75

Solution

Debt to Equity ratio is a financial ratio indicating the relative proportion of shareholders' equity & debt which is used to finance a company's assets. Closely related to leveraging, the ratio is also known as risk,gearing or leverage. Here we are given that Debt to total Assets of a firm is 0.2. The formula debt to Equity is Debt/Equity & we have given debt to total Assets as 0.2. We can consider Total Assets as Debt+Equity. Now debt + Equity=1, substituting debt=0.2 we get Equity=0.8. Finally using Debt to Equity formula=0.25
Question 4
1 / -0

Which of the following is a measure of debt service capacity of a firm?

A
Current Ratio

B
Acid Test Ratio

C
Interest Coverage Ratio

D
Debtors Turnover

Solution

The interest coverage ratio is used to determine how easily a company can pay their interest expenses on outstanding debt.
Question 5
1 / -0

A firm has Capital of 10,60,000; Sales of 5,00,000; Gross Profit of 2,00,000 and Expenses of 1,00,000. What is the Net Profit Ratio?

A
20%

B
50%

C
10%

D
40%

Solution

Net Profit ratio is the ratio of after tax profits to net sales. Here Gross profit is Rs. 2,00,000 less expenses of Rs.1,00,000, we get Net profit as Rs. 100000 and net sales is 5,00,000. Therefore, by applying Net profit ratio formula: 1,00,000/5,00,000 $$\times$$ 100 we get 20%.
Question 6
1 / -0

What is the meaning of current ratio of less than one?

A
Current liabilities < Current assets

B
Fixed assets > Current assets

C
Current assets < Current liabilities

D
Share capital > Current assets

Solution

Current ratio is the measure of liquidity of a company at the certain date. A high current ratio can be signs of problems in managing working capital. When current ratio is low and Current liabilities exceeds current assets, the company may have problems in meeting its short term obligations.
Question 7
1 / -0

The Gross Profit Ratio for a firm remains the same but the net profit ratio is decreasing. The reason for such behavior could be _________.

A
Increase in Costs of Goods Sold

B
Increase in Expense

C
Increase in Dividend

D
Decrease in Sales

Solution

Gross profit ratio is a profitability ratio that shows the relationship between gross profit and total net sales revenue. It is a popular tool to evaluate the operational performance of the business. The net profit percentage is the ratio of after-tax profit to net sales.
Question 8
1 / -0

Debt to total assets ratio can be improved by ___________.

A
Borrowing more

B
Issue of Debentures

C
Issue of Equity Shares

D
Redemption of Debt

Solution

Debt to total assets ratio signifies the proportion of contribution of debt in the total assets. Total assets can be funded by a combination of equity and debt.
In order to ensure better stability of the capital structure, it is always advisable to keep the debt low so that the available assets are sufficient for the debt to be cleared.
Therefore, Debt to total assets ratio can be improved by decreasing the amount of debt.
For example, debt Rs.7000 and the total assets is Rs.10000
Debt to assets ratio will be 7000/10000 i.e. 70%
That signifies that 70% amount is funded through debt in total assets.
If debts are reduced to Rs.4000, the revised ratio will be 40%.
Question 9
1 / -0

Ratio of net income to number of equity shares known as ________.

A
Price Earnings Ratio

B
Net Profit Ratio

C
Earnings Per Share

D
Dividend Per Share

Solution

Earnings per share indicates profitability of a company. It is calculated by dividing company's net income with its total number of outstanding shares.
Question 10
1 / -0

Suppliers and Creditors of a firm are interested in ______.

A
Profitability Position

B
Liquidity Position

C
Market Share Position

D
Debt Position

Solution

Liquidity position signify the short term solvency position of the company. Suppliers and creditors are short term liabilities, they are interested to know the liquidity position.

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Re-Attempt Weekly Quiz Competition

Statement Analysis Tools and Accounting Ratios Test - 12

Result

Statement Analysis Tools and Accounting Ratios Test - 12

Score

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Rank

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SHARING IS CARING

Question 1

A higher receivable turnover is not desirable

Interest coverage ratio depends upon tax rate

Increase in net profit ratio means increase in sales

Lower Debt-Equity ratio means lower financial risk

Solution

Question 2

Return on Assets

Earnings per Share

Net Profit Ratio

Return on Investment

Solution

Question 3

0.80

0.25

1.00

0.75

Solution

Question 4

Current Ratio

Acid Test Ratio

Interest Coverage Ratio

Debtors Turnover

Solution

Question 5

20%

50%

10%

40%

Solution

Question 6

Current liabilities < Current assets

Fixed assets > Current assets

Current assets < Current liabilities

Share capital > Current assets

Solution

Question 7

Increase in Costs of Goods Sold

Increase in Expense

Increase in Dividend

Decrease in Sales

Solution

Question 8

Borrowing more

Issue of Debentures

Issue of Equity Shares

Redemption of Debt

Solution

Question 9

Price Earnings Ratio

Net Profit Ratio

Earnings Per Share

Dividend Per Share

Solution

Question 10

Profitability Position

Liquidity Position

Market Share Position

Debt Position

Solution

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