1. What ratio can be used to inefficient buying habbits?

a. Inventory turnover ratio

b. Gross margin ratio

c. Equity multiplier

d. Debt ratio

2. What does the accounts receivable turnover ratio tell us?

a. How often accounts receivable is received

b. How many times average accounts receivable is collected

c. Accounts receivable balance at the end of a period

d. Bad debt balances at year end

Use the following information for items 3 and 4:

A company's net income after tax was P400,000 for its most recent year. The company's income
statement included Income Tax Expense of P140,000 and Interest Expense of P60,000. At the beginning
of the year the company's stockholders' equity was P1,900,000 and at the end of the year it was
P2,100,000.

3. What is the times interest earned for the company?

a. 6.7

b. 9.0

c. 10.0

d. 8.7

4. What is the after-tax return on stockholder's equity for the year?

a. 20%

b. 25%

c. 30%

d. 35%
5. When the concept of ratio is defined in respected to the items shown in the financial statements, it is
termed as

a. Accounting ratio

b. Financial ratio

c. Costing ratio

d. None of the above

6. Which of the following statements are true about Ratio Analysis?

I. Ratio analysis is useful in financial analysis.

II. Ratio analysis is helpful in communication and coordination

III. Ratio Analysis is not helpful in identifying weak spots of the business.

IV. Ratio Analysis is helpful in financial planning and forecasting.

a. I, II and IV

b. I, III and IV

c. I, II and III

d. I, II, III and IV

7. Which of the following are limitations of ratio analysis?

I. Ratio analysis may result in false results if variations in price levels are not considered.

II. Ratio analysis ignores qualitative factors

III. Ratio Analysis ignores quantitative factors

IV. Ratio Analysis is historical analysis.

a. I, II and IV

b. I, III and IV

c. I, II and III

d. I, II, III and IV

8. Net operating profit ratio determines ___________ while net profit ratio determines

a. Overall efficiency of the business, working efficiency of the management

b. Working efficiency of the management, overall efficiency of the business

c. Overall efficiency of the external market, working efficiency of the internal management

d. None of the above

9. While calculating Earnings per share, if both equity and preference share capitals are there, then

a. Preference share is deducted from the net profit

b. Equity share capital is deducted from the net profit

c. Both a and b

d. None of the above

Cash 10000

Accounts Receivable 30000

Inventory 80000

Prepaid Insurance 6000

Long-term Assets 200000

Accounts Payable 30000

Notes Payable due in 10 months 25000

Wages Payable 5000

Long-term Liabilities 70000

Stockholders' (Owner's) Equity 196000

10. The company's current ratio is

a. 1.0 : 1

b. 2.0 : 1
c. 2.1 : 1

d. 1.1 : 1

ANSWERS:

1. A

2. B

3. C

4. A

5. A

6. A

7. A

8. B

9. A

10. C