## **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
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**

**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 earning 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

**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.__