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Monday, November 02, 2020

Ratio Analysis MCQs | Multiple Choice Questions and Answers | Accounting Ratio MCQs

 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 ratiodebt-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.

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