Ratio Analysis MCQs | Accounting Ratio MCQs

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.

 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

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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).