Statement Analysis Tools and Accounting Ratios Test

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Statement Analysis Tools and Accounting Ratios Test - 17

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Weekly Quiz Competition

Question 1
1 / -0

Which formula is used to measure the degree of Operating leverage?

A
$$\dfrac {EBIT}{Sales}$$

B
$$\dfrac {C}{EBIT}$$

C
$$\dfrac {EBIT}{EBT}$$

D
$$\dfrac {EBIT}{C}$$
Question 2
1 / -0

EBIT stands for____________________.

A
Earnings Before Investment and Taxes

B
Earnings Before Interest and Taxes

C
Earnings Before Income and Taxes

D
Earnings Before Initial Capital and Taxes

Solution

Earnings before interest and taxes (EBIT) is an analyzing tool of a company's profitability. It can be calculated as revenue minus expenses excluding tax and interest. It also depicts the company's net income before income tax expense and interest expenses.

Formula :
EBIT= Revenue-COGS-operating expense
where COGS stands for the cost of goods sold

Thus the correct answer is B.
Question 3
1 / -0

Quick ratio is calculated by using the following formula ___________________.

A
$$\cfrac { Cash+near cash+debtors - Inventories }{ Current\quad liabilities } $$

B
$$\cfrac { Cash+debtors }{ Current\quad liabilities } $$

C
$$\cfrac { Cash }{ Current\quad liabilities } $$

D
$$\cfrac { Cash+near\quad cash+debtors }{ Current\quad assets } $$

Solution

Quick ratio is calculated by dividing liquid current assets by total current liabilities. Liquid current assets include cash, marketable securities and receivables. Cash includes cash in hand and cash at bank.
Question 4
1 / -0

In accounting, _____________ stands for earning before tax.

A
EBT

B
PBT

C
EBIT

D
EBITDA

Solution

EBT stands for Earnings before tax. It is the earnings (profits) of a business, from the sale of its goods and services for a certain period, after paying the interest for the debt or borrowings of a company but before paying the tax.
Question 5
1 / -0

_______ implies a high level of net working capital.

A
Enough cash

B
Cash shortage

C
Excessive cash

D
None of the above

Solution

If a company has very high net working capital, it has more than enough current assets to meet all of its short-term financial obligations. In general, the higher a company's working capital, is considered as a sign of a well-managed company with the potential for growth.
Question 6
1 / -0

The aspect of financial decision making with reference to current assets or short-term assets is known as _______________.

A
Capital budgeting

B
Working capital management

C
Dividend policy

D
Investment analysis

Solution

Decisions relating to working capital and short-term financing are referred to as working capital management.
The policies aim at managing the current assets (generally cash and cash equivalents, inventories and debtors ) and the short-term financing, such that cash flows and returns are acceptable.
Question 7
1 / -0

The operating leverage decreases with an increase in sales _______________.

A
Above the break-even point

B
Below the break-even point

C
Equal the break-even point

D
None of the above

Solution

Essentially, operating leverage boils down to an analysis of fixed costs and from each additional sale if they don't have to increase costs to produce more sales made after the break-even point will generate a higher contribution to profit.
As stated above, in good times, high operating leverage can supercharge profit.
Question 8
1 / -0

Operating leverage is equal to __________________.

A
$$\cfrac { Revenue+variable\quad costs }{ Revenue+variable\quad costs+fixed\quad costs } $$

B
$$\quad \cfrac { Revenue\div variable\quad costs }{ Variable\quad costs\div fixed\quad costs } $$

C
$$\cfrac { Percentage\quad change\quad in\quad earings\quad before\quad interest\quad and\quad taxes }{ Percentage\quad change\quad in\quad quantity\quad produced\quad and\quad sold } $$

D
$$\cfrac { Revenue-Variable\quad costs }{ Revenue-variable\quad costs-fixed\quad costs } $$

Solution

Operating leverage is a cost-accounting formula that measures the degree to which a firm or project can increase operating income by increasing revenue. A business that generates sales with a high gross margin and low variable costs has high operating leverage.
Question 9
1 / -0

The current ratio is _________________________.

A
$$\cfrac { Current\quad assets }{ Current\quad liabilities } $$

B
$$\cfrac { Cash+near\quad cash+debtors }{ Current\quad liabilities } $$

C
$$\cfrac { Liquid\quad assets }{ Current\quad liabilities } $$

D
$$\cfrac { Current\quad liabilities }{ Current\quad assets } $$

Solution

Using the Balance Sheet, the current ratio is calculated by dividing current assets by current liabilities:
Question 10
1 / -0

P/V ratio shows the ________ ratio.

A
Profit and volume

B
Profit earning capability

C
Safety margin

D
None of the above

Solution

P/V ratio = Contribution/ Sales. It is used to measure the profitability of the company. Contribution is the excess of sales over variable cost. So basically P/V ratio is used to measure the level of contribution made at different volumes of sales.

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Statement Analysis Tools and Accounting Ratios Test - 17

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Statement Analysis Tools and Accounting Ratios Test - 17

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SHARING IS CARING

Question 1

$$\dfrac {EBIT}{Sales}$$

$$\dfrac {C}{EBIT}$$

$$\dfrac {EBIT}{EBT}$$

$$\dfrac {EBIT}{C}$$

Question 2

Earnings Before Investment and Taxes

Earnings Before Interest and Taxes

Earnings Before Income and Taxes

Earnings Before Initial Capital and Taxes

Solution

Question 3

$$\cfrac { Cash+near cash+debtors - Inventories }{ Current\quad liabilities } $$

$$\cfrac { Cash+debtors }{ Current\quad liabilities } $$

$$\cfrac { Cash }{ Current\quad liabilities } $$

$$\cfrac { Cash+near\quad cash+debtors }{ Current\quad assets } $$

Solution

Question 4

EBT

PBT

EBIT

EBITDA

Solution

Question 5

Enough cash

Cash shortage

Excessive cash

None of the above

Solution

Question 6

Capital budgeting

Working capital management

Dividend policy

Investment analysis

Solution

Question 7

Above the break-even point

Below the break-even point

Equal the break-even point

None of the above

Solution

Question 8

$$\cfrac { Revenue+variable\quad costs }{ Revenue+variable\quad costs+fixed\quad costs } $$

$$\quad \cfrac { Revenue\div variable\quad costs }{ Variable\quad costs\div fixed\quad costs } $$

$$\cfrac { Percentage\quad change\quad in\quad earings\quad before\quad interest\quad and\quad taxes }{ Percentage\quad change\quad in\quad quantity\quad produced\quad and\quad sold } $$

$$\cfrac { Revenue-Variable\quad costs }{ Revenue-variable\quad costs-fixed\quad costs } $$

Solution

Question 9

$$\cfrac { Current\quad assets }{ Current\quad liabilities } $$

$$\cfrac { Cash+near\quad cash+debtors }{ Current\quad liabilities } $$

$$\cfrac { Liquid\quad assets }{ Current\quad liabilities } $$

$$\cfrac { Current\quad liabilities }{ Current\quad assets } $$

Solution

Question 10

Profit and volume

Profit earning capability

Safety margin

None of the above

Solution

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