**Ratio Analysis MCQs**

**Accounting Ratios MCQs**

** (Multiple
Choice Questions and Answers)**

In this exclusive page, you will
get chapter wise **Ratio Analysis MCQs** for various exams such Class 12, B.Com,
BBA, MBA, CMA, CS and ICAI. In this post you will also get Accounting Ratios
MCQs, **Ratio Analysis MCQs** for various competitive exams.

You can also go through various links given below in the article for Chapter wise Management Accounting MCQs.

### Introduction to Ratio Analysis or Accounting Ratios

A ratio is one figure expressed in terms of another figure. It is mathematical yardstick of measuring relationship of two figures or items or group of items, which are related, is each other and mutually inter-dependent. It is simply the quotient of two numbers.

Ratio analysis is the method or process of expressing relationship between items or group of items in the financial statement are computed, determined and presented.

It is the process of comparison of one figure or item or group of items with another, which make a ratio, and the appraisal of the ratios to make proper analysis of the strengths and weakness of the operations of an enterprise.

Table
of Contents |

1. a) Fill in the blanks b) True or False c) Multiple Choice Questions and
Answers Also read: 3. Financial Statements &
Financial Statement Analysis MCQs |

**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 inter-firm 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)
Acid-test ratio

**c)
****Working
capital ratio**

d)
Absolute liquid ratio.

**5. Liquid ratio is also known as:**

**a)
****Quick
ratio**

**b)
****Acid-test
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)
Debt-equity 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**

**21. current ratio is: **

a)
solvency ratio

**b) ****liquidity ratio **

c)
activity ratio

d)
profitability ratio

**22.
Dividend payout ratio is a:**

a)
Turnover ratio

b)
Long term solvency ratio

c)
Short term solvency ratio

**d) ****Profitability ratio**

**23. Technical
liquidity is normal evaluated on the basis of the following ratio in a human
enterprise: **

a)
current ratio

b)
quick or acid-test ratio

c)
absolute liquid ratio

**d) ****all of these**

**24. Two
basic measures of liquidity are: **

a)
inventory turnover and current ratio

**b)
****current ratio and quick ratio**** **

c)
gross profit ratio and operating ratio

d)
current ratio and average collection period

**25. which
of the following are limitations of ratio analysis? **

a)
ratio analysis may result in false results if variations in price
levels are not considered.

b)
ratio analysis ignores qualitative factors

c)
ratio analysis ignores quantitative factors

d)
ratio analysis is historical analysis

**Ans:
All except c) ratio analysis ignores quantitative factors are the limitations
of ratio analysis**

**26. Based
on sales, the following ratio can be considered important in judging the
profitability of an enterprise. **

a)
Gross profit ratio

b)
Operating profit ratio

c)
Either (a) or (b)

d)
Both (a) & (b)

**Ans: d)
Both (a) & (b)**

**27. which
of the following statements are true about ratio analysis? **

**a) ****Ratio analysis is useful in financial
analysis. **

b)
Ratio analysis is helpful in communication and coordination

c)
Ratio analysis is not helpful in identifying weak spots of the
business.

d)
Ratio analysis is helpful in financial planning and forecasting

**28. Which
among the following is the ratio of net profit to net sales?**

a) Current ratio

b) Gross profit
ratio

**c) Net profit ratio**

d) Stock turnover
ratio

**29. The ratio of shareholders funds to total assets of
the company is called:**

a) Current ratio

b) Efficiency
ratio

**c) Proprietary ratio**

d) Debt-equity
ratio

**30. The ratio obtained by dividing 'quick assets' by
current liabilities is called:**

a) Solvency ratio

b) Turnover ratio

**c) Acid test ratio**

d) None of these

**31. Which one of the following ratios is not a working
capital management ratio?**

a) Current ratio

b) Acid-test
ratio

c) Absolute
liquid ratio

**d) None of these**

**32. activity ratio is calculated to check:**

a) Profitability
of the business

**b) Efficiency of the business **

c) Solvency of
the business

d) None of the
above

**33. Which of the following is not included in profit and
loss account ratio?**

a) Net profit
ratio

b) Gross profit
ratio

c) Operating
ratio

**d) Debt-equity ratio**

**34. A current ratio of less than one means:**

a) Current assets
> Current liabilities

**b) Current assets < Current liabilities**

c) Current assets
= Current liabilities

d) None of the
above

**35. Operating performance is best measured by:**

a) Solvency ratio

b) Liquidity
ratio

**c) Activity ratio**

d) Profitability
ratio

**36. Which among the following is the objective of ratio
analysis?**

a) Profitability

b) Solvency

c) Efficiency

**d) All of the above**

**37. which of the following is not a solvency ratio?**

a) Debt equity
ratio

b) Proprietary
ratio

c) Total asset to
debt ratio

**d) Gross Profit ratio**

**38. Low turnover of stock ratio indicates:**

a) Strong
solvency position

**b) Weak sales and over investment in stock**

c) Low profit

d) Monopoly in
business

**39. Which ratio is used to analyse the capital structure
of a company?**

a) Debt equity
ratio

b) Proprietary
ratio

c) Total asset to
debt ratio

**d) All of the above**

**40. Interest coverage ratio falls under the group of:**

a) Liquidity
ratios

b) Profitability
ratios

c) Activity
ratios

**d) Solvency ratios**

**41. Ratio that compares investors and creditors stake in
a company:**

**a) Debt equity ratio**

b) Proprietary
ratio

c) Total asset to
debt ratio

d) Current ratio

**42. The ratio which measures the profit in relation to
capital employed is known as:**

**a) Return on investment**

b) Gross profit
ratio

c) Operating
profit ratio

d) Working
capital turnover ratio

**43. Ratio of net profit before interest and fax to sales
is:**

a) Capital
gearing ratio

b) Solvency ratio

c) Operating
ratio

**d) Operating profit ratio**

**44. Which of the following is not commonly used measure
of leverage ratio?**

a) Debt equity
ratio

b) Proprietary
ratio

**c) Liquid ratio**

d) Total assets
to debt ratio

**45. The ratio which reveals the final result of the
managerial policies and performance is:**

a) Liquidity
ratios

**b) Profitability ratios **

c) Activity
ratios

d) Solvency
ratios

**46. The ratio which measures of the managerial efficiency
in handling the assets is:**

a) Liquidity
ratios

b) Profitability
ratios

**c) Activity ratios **

d) Solvency
ratios

**47. Higher the ratio the more favourable it is does not
stand true for:**

a) Current ratio

b) Stock turnover
ratio

c) Gross profit
ratio

**d) Debt equity ratio**

**48. Which of the following is not an indicator that a
firm is overtrading? **

a) A sharp
increase in sales

b) Decreasing
margins due to the use of discounts

c) Increasing
size of overdraft

**d) A decreasing debtor period **

**49. In Inventory Turnover calculation, what is taken in
the numerator? **

a) Sales

**b) Cost of Goods Sold **

c) Opening Stock

d) Closing Stock.

**50. Ratio Analysis can be used to study liquidity,
turnover, profitability, etc. of a firm. What does Debt-Equity Ratio help to
study? **

**a) Solvency **

b) Liquidity

c) Profitability

d) Turnover

**Ratio Analysis
MCQs**

** State whether the following statements are true or
false:**

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 earnings ratio, better it is, as it indicates growth of the
company. True

9.
Current Ratio indicates short-term 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

17. Liquidity
ratio indicates the ability of the company to meet its short term obligations. True

18. Quick
ratio is the relationship between quick assets and current liabilities. True

19. Debt
equity ratio is solvency ratio. True

20. An
increase in stock turnover ratio indicates that business is becoming more
efficient. True

**Ratio Analysis
MCQs**

**Fill
in the blanks:**

1.
Quick assets are current assets less __Inventories
and Prepaid expenses.__

2.
Long-term solvency of the business is reflected by _____ (Acid Test/Ratio/** Debt-equity 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/acid-test ratio/ __debt-equity 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.__

13. Net profit ratio is calculated by dividing
net profit after interest and tax by __net sales.__

14. The best ratio to evaluate short-term
liquidity is __liquid
ratio.__

15. Solvency ratio is also known as__ leverage ratio.__

16. The ratio which measures the relationship
between the cost of goods sold and the amount of average stock is called __stock turnover ratio.__

17. Liquid or quick assets = __Current assets – Stock/inventory
– Prepaid expenses if any.__

18. Return on assets and return on investment
ratio belong to __solvency
ratio.__

19. gross profit is to be distributed between
the two periods on the basis of __Sales ratio.__

20. Operating profit ratio x capital turnover
ratio is equal to __ROI
(Return on Investment).__

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