Statement Analysis Tools and Accounting Ratios Test

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Statement Analysis Tools and Accounting Ratios Test - 15

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Weekly Quiz Competition

Question 1
1 / -0

The turnover ratio indicates ________.

A
the number of times the capital has been rotated in the process of doing business

B
the efficiency with which the capital employed is rotated in the business

C
Both (A) and (B)

D
Financial position of the company

Solution

Turnover ratio is a measurement of the number of times a company's inventory is replaced during a given period of time. It is calculated by dividing cost of goods sold by average inventory during a given period of time. It indicates the number of times the capital has been rotated in the process of doing business as well as the efficiency with which the capital employed is totated in the business.
Question 2
1 / -0

Debt-Equity ratio is also known as _____________.

A
Acid test ratio

B
Quick ratio

C
External-internal equity ratio

D
Proprietory ratio

Solution

Debt-equity ratio indicates that how much debt a company is using to finance its assets relative to the value of shareholder's equity.
The formula for calculating debt-equity Ratio is :-
Total liabilities / share holder's equity. It is also referred to as external-internal equity ratio or gearing ratio.
Question 3
1 / -0

State the formula for turnover ratio.

A
$$\dfrac {\text {Current assets}}{\text {Current liabilities}}$$

B
$$\dfrac {Sales}{\text {Capital employed}}$$

C
$$\dfrac {\text {Fixed assets}}{\text {Long-term funds}}$$

D
$$\dfrac {\text {Current assets}}{Sales}$$

Solution

Turnover ratio is a measurement of the number of times a company's inventory is replaced during a given period of time. It is calculated by dividing cost of goods sold by capital employed during a given period of time.
Question 4
1 / -0

The debt-equity ratio is determined to ____________.

A
Ascertain the soundness of the long-term financial policies of the company

B
Ascertain the soundness of the medium term financial policies of the company

C
Ascertain the soundness of the short term financial policies of the company

D
None of the above

Solution

Debt equity ratio basically indicates how much debt a company is using to finance its assets relative to the value of shareholder's equity. It is a financial liquidity ratio that compares a company's debt to its equity. Hence, it ascertains the soundness of the long-term financial policies of the company.
Question 5
1 / -0

Which of the following ratios is termed as 'acid test ratio' or 'quick ratio'?

A
Fixed assets Ratio

B
Current Ratio

C
Liquidity ratio

D
Debt-Equity ratio

Solution

Liquidity ratio measures the company's ability to pay debt obligations and its margin of safety through the calculation of metrics including the current ratio and quick ratio. It also indicates cash flow positioning. It is also called as acid test ratio and quick ratio.
Question 6
1 / -0

Proprietory ratio is a variant of ______.

A
Acid test ratio

B
Debt-equity ratio

C
Quick ratio

D
External-internal equity ratio

Solution

Proprietary ratio also called as net worth ratio or equity ratio is used to evaluate the soundness of the capital structure of the company. It is computed by dividing the stockholder's equity by total assets. We can say that, it is a variant of debt-equity ratio.
Question 7
1 / -0

Debt - Equity ratio may be calculated as _______.

A
$$\dfrac {\text {External equities}}{\text {Internal equities}}$$

B
$$\dfrac {\text {Shareholders funds}}{\text {Total tangible assets}}$$

C
$$\dfrac {\text {Internal equities}}{\text {External equities}}$$

D
$$\dfrac {\text {Total intangible assets}}{\text {Internal equities}}$$

Solution

Debt-equity ratio indicates that how much debt a company is using to finance its assets relative to the value of shareholder's equity. The formula for calculating it is: External equities / internal equities. It is also referred to as external-internal equity ratio or gearing ratio.
Question 8
1 / -0

Pay out ratio can be calculated by ___________.

A
$$\dfrac {\text {Dividend per preference share}}{\text {Earning per preference share}}$$

B
$$\dfrac {\text {Dividend per equity share}}{\text {Earning per equity share}}$$

C
$$\dfrac {\text {Dividend per preference share}}{\text {Earning per equity share}}$$

D
$$\dfrac {\text {Dividend per equity share}}{\text {Earning per preference share}}$$

Solution

Pay out ratio is the proportion of earnings paid out as dividends to shareholders which is expressed as percentage. It is calculated by dividing dividend per equity share by the earning per equity share.
Question 9
1 / -0

Financial ratios indicate ___________.

A
The financial position of the company

B
The insolvency condition of the company

C
The sales position of the company

D
The value of fixed assets of the company

Solution

Financial ratio is a relative magnitude of two selected numerical values from the financial statements of the company. Financial analysts use financial ratio to compare the strengths and weaknesses of the financial position of the company. Hence, financial ratios indicate the financial position of the company.
Question 10
1 / -0

Ratio of 'Net sales' to 'Net Working Capital' _________________.

A
Liquidity ratio

B
Profitability ratio

C
Working capital turnover ratio

D
Capital gearing ratio

Solution

The working capital turnover ratio determines the utility of the working-capital for the level of sales and the working capital ratio can be determined by dividing the net sales by net working capital. And Working Capital is equal to current assets minus current liabilities. A high turnover ratio is better because a low ratio indicates an inefficient utilization of working capital during the period.
Thus the correct answer is C.

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Re-Attempt Weekly Quiz Competition

Statement Analysis Tools and Accounting Ratios Test - 15

Result

Statement Analysis Tools and Accounting Ratios Test - 15

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SHARING IS CARING

Question 1

the number of times the capital has been rotated in the process of doing business

the efficiency with which the capital employed is rotated in the business

Both (A) and (B)

Financial position of the company

Solution

Question 2

Acid test ratio

Quick ratio

External-internal equity ratio

Proprietory ratio

Solution

Question 3

$$\dfrac {\text {Current assets}}{\text {Current liabilities}}$$

$$\dfrac {Sales}{\text {Capital employed}}$$

$$\dfrac {\text {Fixed assets}}{\text {Long-term funds}}$$

$$\dfrac {\text {Current assets}}{Sales}$$

Solution

Question 4

Ascertain the soundness of the long-term financial policies of the company

Ascertain the soundness of the medium term financial policies of the company

Ascertain the soundness of the short term financial policies of the company

None of the above

Solution

Question 5

Fixed assets Ratio

Current Ratio

Liquidity ratio

Debt-Equity ratio

Solution

Question 6

Acid test ratio

Debt-equity ratio

Quick ratio

External-internal equity ratio

Solution

Question 7

$$\dfrac {\text {External equities}}{\text {Internal equities}}$$

$$\dfrac {\text {Shareholders funds}}{\text {Total tangible assets}}$$

$$\dfrac {\text {Internal equities}}{\text {External equities}}$$

$$\dfrac {\text {Total intangible assets}}{\text {Internal equities}}$$

Solution

Question 8

$$\dfrac {\text {Dividend per preference share}}{\text {Earning per preference share}}$$

$$\dfrac {\text {Dividend per equity share}}{\text {Earning per equity share}}$$

$$\dfrac {\text {Dividend per preference share}}{\text {Earning per equity share}}$$

$$\dfrac {\text {Dividend per equity share}}{\text {Earning per preference share}}$$

Solution

Question 9

The financial position of the company

The insolvency condition of the company

The sales position of the company

The value of fixed assets of the company

Solution

Question 10

Liquidity ratio

Profitability ratio

Working capital turnover ratio

Capital gearing ratio

Solution

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