The term financial statement refers to ________________ (a)only income statement (b) only cash flow statement (c)only

balance sheet (d) all of the above

In __________________ figures of two or more periods are placed side by side to facilitate easy and meaningful comparisons. (a)comparative statement analysis (b) trend percentage analysis (c)common-size statement analysis (d) none of these

The comparative income statement shows the increase or decrease of ________ over the previous year. (a) only sales (b) only expense (c) only profit (d) all of the above

What is shown by a comparative balance sheet ? (a) two years balance sheet figures only (b) only percentage of increase or decrease. (c) only increase or decrease in figures (d) all of the above

The technique of converting figures into percentages to some common base is called _________. (a) common-size statement analysis (b) ratio analysis (c) trend percentages (d) none of these

 COLUMN A 1. Internal Analysis 2. Sources of Funds 3. Ratio Analysis 4. Application of Funds 5. External Analysis 6. Working Capital 7. Horizontal Analysis 8. Own Funds 9. Quick Assets 10. Bank Overdraft

COLUMN B
(a) (b) Investors Owners or managers of the concern itself (c) Trend percentages (d) Capital + Reserves Fictitious Assets (e) Vertical Analysis (f) Current Assets Inventories Prepayments (g) Own Funds + Bank Overdraft (h) Fixed Assets + Investments + Current Assets Current Liabilities (i) Net Worth + Loan Funds (j) Capital Employed Fixed Assets Investments (k) Dynamic Analysis (l) Current Liabilities Quick Liabilities (m) Horizontal Analysis (n) Fixed Assets + Working Capital

 COLUMN A 1. Internal Analysis b 2. Sources of Funds i 3. Ratio Analysis e 4. Application of Funds h 5. External Analysis a 6. Working Capital j 7. Horizontal Analysis c 8. Own Funds d 9. Quick Assets f 10. Bank Overdraft l

COLUMN B
(a) (b) Investors Owners or managers of the concern itself (c) Trend percentages (d) Capital + Reserves Fictitious Assets (e) Vertical Analysis (f) Current Assets Inventories Prepayments (g) Own Funds + Bank Overdraft (h) Fixed Assets + Investments + Current Assets Current Liabilities (i) Net Worth + Loan Funds (j) Capital Employed Fixed Assets Investments (k) Dynamic Analysis (l) Current Liabilities Quick Liabilities (m) Horizontal Analysis (n) Fixed Assets + Working Capital

In common-size income statement analysis the _____________ is a assumed to be hundred and all other figures are expressed as a percentage of ____________.
(a) sales, sales (b) sales, net profit (c) sales, profit (d) none of these

In common-size balance sheet analysis, the ______________ are taken as cent percent.
(a) fixed assets (b) total assets (c) Total Capital employed (d) none of these

 The technique of taking first year figures as base and comparing with subsequent year is called __________. (a) trend analysis (b) common-size statement (c) ratio analysis (d) none of these

 The tem outsiders funds / owed funds indicates __________.

(a) all short-term debts (b) both short and long-term debts (c) all long-term debts (d) none of these

 Shareholders fund consists of _____________________.

(a) only preference capital (b) only reserves and surplus (c) only equity capital (d) all of the above

 Capital employed is equal to (a) fixed assets + current assets (b) net worth + long-term liabilities (c) shareholders funds (d) none of the above

 In common size analysis the items in the income statement are expressed as percentage of

(a) Total assets (b) Total expenses (c) Gross sales (d) Net sales


1.

Fill in the Blanks.

________________ (External / Internal) analysis of financial statements is done by the owners or managers of the concern itself. _________________(External / Internal) analysis of financial statements is done by outsiders such as investors, creditors, etc. In a vertical balance sheet, Owners Funds = Capital + Reserves and Surplus Less P & L A/c _____________ (Debit / Credit) Balance. ______________ Funds is internal source of finance, whereas ________ Funds is an external source of finance. In a vertical balance sheet, fictitious assets are deducted from ______________.

2.

3.

4. 5.


1. 2. 3.

Fill in the Blanks.

INTERNAL(External / Internal) analysis of financial statements is done by the owners or managers of the concern itself. EXTERNAL(External / Internal) analysis of financial statements is done by outsiders such as investors, creditors, etc. In a vertical balance sheet, Owners Funds = Capital + Reserves and Surplus Less P & L A/c DEBIT(Debit / Credit) Balance. OWN Funds is internal source of finance, whereas OWEDFunds is an external source of finance. In a vertical balance sheet, fictitious assets are deducted from OWN FUNDS.

4.
5.

1. In a vertical balance sheet, capital reserve forms part of ___________. 2. In a common size Income Statement, ________________ is taken as 100. 3. Quick Assets = Current Assets Less ________ and ________. 4. Quick Liabilities = Current Liabilities Less _______________. 5. In a Vertical Balance Sheet, Funds Available = ______ + Loan Funds.

1. In a vertical balance sheet, capital reserve forms part of RESERVES AND SURPLUS. 2. In a common size Income Statement, NET SALES is taken as 100. 3. Quick Assets = Current Assets Less STOCK and PRE PAID EXPENSES. 4. Quick Liabilities = Current Liabilities Less BANK OVERDRAFT. 5. In a Vertical Balance Sheet, Funds Available = PROPRIETORS FUNDS + Loan Funds.

1. In a Vertical Balance Sheet, Funds Used = Net Fixed Assets + Investments + ______. 2. Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses - _______. 3. In Vertical Income Statement, Net Sales Cost of Goods Sold = __________. 4. In Vertical Income Statement, Operating Profit = _________ Profit Less Operating Expenses. 5. In Vertical Income Statement, preliminary expenses written off will be shown under _____ Expenses.

1. In a Vertical Balance Sheet, Funds Used = Net Fixed Assets + Investments + NET WORKING CAPITAL. 2. Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses - CLOSING STOCK. 3. In Vertical Income Statement, Net Sales Cost of Goods Sold = GROSS PROFIT. 4. In Vertical Income Statement, Operating Profit = GROSS Profit Less Operating Expenses. 5. In Vertical Income Statement, preliminary expenses written off will be shown under NON OPERATING Expenses.

 State whether True or False : 1. Horizontal Analysis involves analysis of two items in the financial statement of the same concern and in the same year. 2. For an oil company, stock of oil is a liquid asset. 3. In a vertical balance sheet, fictitious assets are included under Fixed Assets. 4. Owed Funds is an internal source of Finance. 5. Intangible assets like Goodwill are shown under Application of Funds in the vertical Balance Sheet.

 State whether True or False : 1. Horizontal Analysis involves analysis of two items in the financial statement of the same concern and in the same year. FALSE 2. For an oil company, stock of oil is a liquid asset. FALSE 3. In a vertical balance sheet, fictitious assets are included under Fixed Assets. FALSE 4. Owed Funds is an internal source of Finance.FALSE 5. Intangible assets like Goodwill are shown under Application of Funds in the vertical Balance Sheet. TRUE

1. Advances to suppliers for goods are classified as Quick Assets in vertical statements. 2. Advances to contractors for construction of building are classified as Loans & Advances under Current Assets in vertical financial statements. 3. Unclaimed dividends are classified as Current liabilities in vertical financial statements.

1. Advances to suppliers for goods are classified as Quick Assets in vertical statements. FALSE 2. Advances to contractors for construction of building are classified as Loans & Advances under Current Assets in vertical financial statements. FALSE 3. Unclaimed dividends are classified as Current liabilities in vertical financial statements. TRUE

1. Penalty for late payment of sales tax on sale of trading goods is an operating expenditure. 2. Common-size analysis is used for comparing performance of a company in one year with that of another year. 3. While comparative statement shows the size of change, trend statement shown the direction of change.

1. Penalty for late payment of sales tax on sale of trading goods is an operating expenditure.FALSE 2. Common-size analysis is used for comparing performance of a company in one year with that of another year. FALSE 3. While comparative statement shows the size of change, trend statement shown the direction of change. TRUE

 Which ratios are applied to find out the efficiency of performance of a firm ? (a) only activity ratios (b) only profitability ratios (c) both (d) none of these

 Liquidity ratio indicates the ability of the company to meet its _____________. (a) current liability (b) shareholders claim (c) long-term liabilities (d) tax obligations

Quick assets is equal to __________________ (a) current assets (stock prepaid expenses) (b) current assets + (stock prepaid expenses) (c) current assets + (stock + prepaid expenses) (d) current assets (stock + prepaid expenses)

 Quick liabilities is equal to _____________________. (a) current liabilities Bank OD (b) current assets current liabilities (c) current liabilities liquid liabilities (d) current liabilities + bank O/D

 Bank overdraft is equal to ____________________.

(a) current liabilities + liquid liabilities (b) current assets stock (c) current liabilities liquid liabilities (d) current assets stock and prepaid expenses

 What ratio indicates the relationship between shareholders funds and outsiders funds ? (a) proprietary ratio (b) debt-equity ratio (c) operating ratio (d) none of these

 COLUMN A 1. Test of Liquidity 2. Test of Profitability 3. Test of Solvency 4. Test of Activity

COLUMN B (a) Debt equity Ratio (b) Acid Test Ratio (c) ROI (d) Debtors Turnover

 COLUMN A

COLUMN B 1. Test of Liquidity (a) Debt equity B Ratio 2. Test of (b) Acid Test Profitability C Ratio 3. Test of Solvency (c) ROI A 4. Test of Activity (d) Debtors D Turnover

1. Leverage Ratio 2. Activity Ratio 3. Liquidity Ratio 4. Profitability Ratio 5. Coverage Ratio

a) Operating Ratio b) Dividend Payout Ratio c) Capital Gearing Ratio d) Stock Turnover Ratio e) Current Ratio

1. 2. 3. 4.

Leverage Ratio C Activity Ratio D Liquidity Ratio E Profitability Ratio A 5. Coverage Ratio B

a) Operating Ratio b) Dividend Payout Ratio c) Capital Gearing Ratio d) Stock Turnover Ratio e) Current Ratio

1. Proprietory ratio 2. Debtors turnover ratio 3. Return on investments 4. Debt service coverage ratio

a) Profitability Ratio b)Activity Ratio c) Coverage Ratio d)Solvency Ratio

1. Proprietory ratio D 2. Debtors turnover ratio B 3. Return on investments A 4. Debt service coverage ratio C

a) Profitability Ratio b)Activity Ratio c) Coverage Ratio d)Solvency Ratio

 State whether True or False : 1. Liquid ratio indicates the companys ability to meet its long term liabilities. 2. Quick Assets = Current Assets (Stock Prepaid Expenses) 3. Bank Overdraft = Current Liabilities Quick Liabilities 4. Bank Overdraft = Current Assets Stock 5. High Proprietary Ratio indicates low risk for the creditors.

 State whether True or False : 1. Liquid ratio indicates the companys ability to meet its long term liabilities. FALSE 2. Quick Assets = Current Assets (Stock Prepaid Expenses) FALSE 3. Bank Overdraft = Current Liabilities Quick Liabilities TRUE 4. Bank Overdraft = Current Assets Stock FALSE 5. High Proprietary Ratio indicates low risk for the creditors. TRUE

1. High Stock Turnover Ratio indicates high cost of goods sold. 2. All other things remaining the same, issue of new shares will improve the current ratio. 3. The difference between the current and quick ratio is that inventory is reduced from current liabilities when computing liquid ratio. 4. Liquidity means the firms ability to pay its debts in the long run. 5. Lower Inventory Turnover Ratio indicates higher efficiency in inventory management.

1. High Stock Turnover Ratio indicates high cost of goods sold. FALSE 2. All other things remaining the same, issue of new shares will improve the current ratio. TRUE 3. The difference between the current and quick ratio is that inventory is reduced from current liabilities when computing liquid ratio. FALSE 4. Liquidity means the firms ability to pay its debts in the long run. FALSE 5. Lower Inventory Turnover Ratio indicates higher efficiency in inventory management. FLASE

1. While computing Debt Equity Ratio, Pref. Share Capital is to be ignored. 2. While computing Proprietory Ratio, Pref. Share Capital is taken as part of the Proprietors Funds.
3. Proprietory Ratio = Proprietors Funds x 100

Capital Employed + Current Liabilities

1. While computing Debt Equity Ratio, Pref. Share Capital is to be ignored. FALSE 2. While computing Proprietory Ratio, Pref. Share Capital is taken as part of the Proprietors Funds. TRUE
3. Proprietory Ratio = Proprietors Funds x 100

Capital Employed + Current Liabilities

TRUE

 Proprietory Ratio = Proprietors Funds_x 100 Fixed Assets + Investments + Working capital
Proprietory Ratio = Proprietors Funds x 100 Total of Assets side of Horizontal Balance sheet Less Fictitious Assets
_

 Proprietory Ratio = Proprietors Funds_x 100

Fixed Assets + Investments + Working capital FALSE

Proprietory Ratio = Proprietors Funds x 100 Total of Assets side of Horizontal Balance sheet Less Fictitious Assets TRUE
_

1. A Liquid ratio higher than 1:1 shows under-investment. 2. A Current ratio lower than 2:1 shows under-trading. 3. In Capital Gearing Ratio, Pref. Share Capital forms part of the Denominator. 4. Operating Ratio = Operating Expenses / Profit.

1. A Liquid ratio higher than 1:1 shows under-investment. TRUE 2. A Current ratio lower than 2:1 shows under-trading. FALSE 3. In Capital Gearing Ratio, Pref. Share Capital forms part of the Denominator. FALSE 4. Operating Ratio = Operating Expenses / Profit. FALSE

1. Return on Capital Employed = NPAT / Capital Employed x 100 2. Return on Capital Employed = Net Profit Ratio x Capital Turnover Ratio 3. Return on Proprietors Funds = NPAT / Capital Employed x 100 4. Return on Equity Capital = Net Profit before Tax / Equity Shareholders Funds x 100 5. Return on Equity Capital = Profit available to Equity Shareholders / Paid-up Equity Share Capital x 100.

1. Return on Capital Employed = NPAT / Capital Employed x 100 2. Return on Capital Employed = Net Profit Ratio x Capital Turnover Ratio 3. Return on Proprietors Funds = NPAT / Capital Employed x 100 4. Return on Equity Capital = Net Profit before Tax / Equity Shareholders Funds x 100 5. Return on Equity Capital = Profit available to Equity Shareholders / Paid-up Equity Share Capital x 100.

1. Dividend Payout Ratio = Equity Dividend / NPAT x 100 2. Dividend Payout Ratio = Equity Dividend + Pref. Dividend / NPAT x 100 3. Debt Service Ratio = PBIT / Interest 4. Debtors Turnover Ratio includes only sundry debtors; it excludes Bills Receivable.

 Fill In the Blanks :

1. Proprietory Ratio = Proprietors Funds x 100

? 2. The standard Proprietory Ratio is approx. ____________________- %. 3. When the current ratio is 2 : 5, and the amount of current liabilities is Rs.25,000, the amount of current assets is Rs. __________________.

1. When quick ratio is 1.5 : 1 and the amount of quick assets Rs.30,000, the amount of quick liabilities is Rs._______________. 2. When opening stock is Rs.50,000, closing stock rs.60,000, and cost of goods sold Rs.2,20,000, the stock turnover ratio is _______________ times. 3. When net sales for the year are Rs.2,50,000 and debtors Rs.50,000, the average collection period is _________ days.

1. Given net profit Rs.150,000, preference dividend Rs.25,000, taxes Rs.10,000 and number of equity shares 1,00,000; the Earning per Share (EPS) is Rs.________. 2. When net profit is Rs.2,25,000, taxes Rs.25,000 and net worth Rs.10,00,000 the rate of return on shareholders equity is ________ %. 3. ROI Return on Investment is equal to _________ / Net Tangible Assets.

1. Balance Sheet of a company indicates that its current ratio is 1.5. Companys net working capital is Rs. one crore. The Current Assets would amount to ________. 2. Earnings after Interest and Tax is Rs.20 crore, interest is Rs.4 crore, Income Tax is Rs.16 crore. Interest Coverage Ratio would be _________.

 If the current assets and current liabilities are Rs.2,000 lakh and Rs.1,200 lakh respectively. How much amount can be borrowed on a shortterm basis without reducing current ratio below 1.5 ?

(a) Rs. 400 lakh (b) Rs. 1200 lakh (c) Rs. 1000 lakh (d) Rs. 1400 lakh

 In which of the following situations, price earnings ratio is applied ? a) To determine the financial risk of a business entity b) To determine the expected market value of the shares of a company c) To assess the earning potential of a company in the near future d) To examine the operational efficiency of a company

 The current ratio and quick ratio of BCC Ltd. are nearly the same. This suggests that

a) The company has got a sizeable investment in inventory b) The company has got a low investment in inventory c) The quick assets of the company are low d) The company is a highly profitable one

 Interest coverage ratio of 6 indicates

a) Sales are 6 times of interest b) Profit after tax is 6 times of interest c) Profit before tax is 6 times of interest d) Earning before interest and taxes is 6 times of interest

 Return On Investment (ROI) and Return On Equity (ROE) are exactly 0.25. This indicates that

(a) ROE has been calculated wrongly (b) ROI pertains to the previous year (c) The firm has no debt in their capital structure (d) None of the above

 The basic ratio for measuring the firms ability meet its interest charges is the: (a) Cash flow coverage ratio (b) Debt service coverage ratio (c) Interest coverage ratio (d) Acid test ratio

 When current assets and current liabilities increase by the same amount.

(a) The current ratio remains the same. (b) The current ratio increases, if it is greater than 1 (c) The current ratio decreases, if it is greater than 1 (d) None of the above

 A high inventory turnover ratio

(a) Could mean that inventory could have increased even when net sales remained constant. (b) Is generally an indicator of efficient inventory management. (c) Could also be an indicator of under trading. (d) All of the above.

 Earnings Per Share (EPS) is equal to

(a) Profit before tax / No. of outstanding shares (b) Profit after tax / No. of outstanding shares (c) Profit after tax / Amount of equity share capital (d) Profit after tax less equity dividends / No. of outstanding shares

 Which of the following is a liquity ratio ?

(a) Debt-equity ratio (b) Net profit margin (c) Acid test ratio (d) Dividend pay-out ratio

 If the debt equity ratio of a company is 2 : 1 that it can be understood that for every

(a) 2 rupees of equity there is 1 rupee of debt (b) 3 rupees of total asses there is one rupee of debt (c) 2 rupees of total assets there is 1 rupee of equity (d) 3 rupees of total long term funds there are 2 rupees of debt