Accounting Ratios MCQs
Ratio Analysis MCQs
(Multiple Choice Questions and Answers)
Choose the correct answer:
1. Ratio analysis:
a) Is an
arithmetical relationship between two accounting variables?
b) Provide
quantitative relationship between two variables.
c) It is
one of the mean of financial analysis.
d) All of the above.
2. Which of the following is not true about ratio analysis?
a) It is
affected by price level changes.
b) It is
difficult to evolve a standard ratio.
c) It can
give false and misleading results.
d)
It is not useful in
interfirm and intra firm comparison.
3. Which of the following is not a
limitation of ratio analysis?
a) False
and Misleading results.
b) It
ignores qualitative factors.
c) It is
affected by personal judgement of the analyst.
d)
It cannot be used in
forecasting.
4. Current
ratio is also known as :
a) Quick
ratio
b) Acidtest
ratio
c)
Working capital ratio
d) Absolute
liquid ratio.
5. Liquid ratio is also known as:
a) Quick ratio
b)
Acidtest ratio
c) Working
capital ratio
d) Absolute
liquid ratio.
6. Quick assets divided by current
liabilities is:
a) Current
ratio
b)
Liquid ratio
c) Inventory
turnover ratio.
d) ROI
7. Which of the following liabilities
are taken into account for the quick ratio?
a) Trade
Creditors
b) Outstanding
expenses
c) Bank
overdraft
d)
All of the above
8. The ideal level of current ratio is:
a) 1:1
b)
2:1
c) 0.5:1
d) 3
9. The ideal level of liquid ratio is:
a)
1:1
b) 2:1
c) 0.5:1
d) 3
10. Accounting ratios are divided into
four main categories. Which one of the following was not included in it?
a) Liquidity
ratios
b) Solvency
ratios
c) Activity
ratios
d)
Control ratios
e) Profitability
ratios
11.
Which of the following ratio measures short term solvency?
a) Liquidity ratios
b) Solvency
ratios
c) Activity
ratios
d) Profitability
ratios
12. Liquidity ratios include:
a) Current
ratio
b) Quick or
Liquid or acid test ratio
c) Absolute
liquid ratio
d) All of the above
13. Which
of the following ratio measures short term solvency?
a) Liquidity
ratios
b) Solvency ratios
c) Activity
ratios
d) Profitability
ratios
14. Solvency ratios include:
a) Debtequity
ratio
b) Proprietary
ratio
c) Total
assets to debt ratio
d) All of the above
15. Activity ratios are also known as:
a) Performance
ratios
b) Turnover
ratios
c) Efficiency
ratios
d) All of the above
16. Activity ratios include:
a) Stock turnover
ratio
b) Trade
receivables turnover ratio
c) Trade
payables turnover ratio
d) All of the above
17. Profitability ratios include:
a) Gross
profit ratio
b) Net
profit ratio
c) Operating
profit ratio
d) All of the above
18. Gross profit ratio is also termed
as:
a) Operating
ratio
b) Operating
profit ratio
c) Gross margin ratio
d) Net
profit ratio
19. Net profit ratio is calculated by
dividing net profit after interest and tax by:
a) Cost of
goods sold
b) Net sales
c) Net
purchases
d) None of
the above
20. Current assets include:
a) Inventories
b) Trade
receivables
c) Cash and
cash equivalents
d) All of the above
State whether the following
statements are true or false:
Multiple Choice Questions and Answers (MCQs)  
Financial Accounting  Corporate Accounting 

Hire Purchase and Installment System  Issue and Redemption of Debentures Redemption of Preference Shares 

Management Accounting  Chapter Wise MCQs 

Marginal and Absorption Costing Ratio Analysis 
1. Ratio analysis is the most widely
used technique for analysis of financial statements. False
2. Ratio analysis is a technique of
planning and control. False
3. Ideal current ratio is 2:1. True
4. Current ratio is also known as liquid
ratio. False, Working Capital Ratio
5. Current ratio is calculated by dividing current assets by
current liabilities. True
6. Liquid ratio is calculated by dividing liquid assets by current
liabilities. True
7. Current Ratio is calculated to
compare current assets and fixed assets. False, Current Assets/Current Liabilities
8. Higher the price earning ratio,
better it is, as it indicates growth of the company. True
9. Current Ratio indicates shortterm
debt paying ability of a firm. True
10. Liquidity ratios indicate the firm’s
ability to pay its current
liability. True
11. A decrease in Stock Turnover Ratio
indicates that business is becoming more efficient. False
12. Capital gearing is a term used to
express the relationship between ordinary share capital and fixed interest
bearing securities of a company. True
13. To compute the quick ratio,
accounts receivable are not included in current assets. False
14. EPS is equal to net profit minus
preference dividend divided by the number of equity shares issued. True
15. Proprietary ratio = Shareholder’s
fund/Total assets. True
16. Current ratio is also known as acid
test
ratio. False
Fill in the blanks:
1. Quick assets are current assets less Inventories and Prepaid
expenses.
2. Longterm solvency of the business is
reflected by _____ (Acid Test/Ratio/Debtequity Ratio/Stock
Turnover Ratio).
3. Ratio of net profit before interest
and taxes to sales is ____ ratio (net profit/profit/operative
profit)
4. Long term solvency ratio is the same
as_____(current ratio/acidtest ratio/ debtequity
ratio)
5. Working capital turnover ratio = Net sales / Working capital.
6. Proprietary ratio = Shareholders fund / Total assets.
7. Average collection period = 365 / Trade
receivables turnover ratio.
8. Return on investment measures a
relationship between net profit before interest and
tax and capital employed.
9. Total assets to debt ratio = Total
assets / debts.
10. Operating ratios = (COGS + Operating expenses)/Net sales.
11. Operating profit ratio = 1 – operating ratio.
12. Capital employed = Total of fixed
assets + Working capital.
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