Deck 8: Ratio Analysis : Liquidity, Working Capital and Long-Term Financial Stability

Question 1

Different types of businesses have different cash flow cycles. Which of the following statements describe the cash flow cycle of retailers and which describe the cash flow cycle of manufacturers?

A) Sell finished goods on credit to customers = Manufacturers
B) Turn raw materials into finished goods = Manufacturers
C) Sell bought in goods to customers for cash = Retailers
D) Goods for resale purchased on credit from suppliers = Retailers

Answer 1

Sell bought in goods to customers for cash = Retailers

Question 2

Based on the figures below, what is the current ratio?
$\begin{array}{lc} & £ \\\text { Inventory } & 6,000 \\\text { Payables } & 12,000 \\\text { Receivables } & 11,000 \\\text { Non-current liabilities } & 16,000 \\\text { Current portion of long-term borrowings } & 3,000 \\\text { Cash } & 1,000 \\\text { Taxation payable } & 5,000\end{array}$

A) 0.50:1
B) 0.60:1
C) 0.75:1
D) 0.90:1

Answer 2

0.90:1

Question 3

Based on the below figures, what is the current ratio?
$\begin{array}{r}&£ \\\text {Trade payables } &20,000 \\\text { Trade and other receivables } &25,000 \\\text { Cash } &9,000 \\\text {Taxation payable } &10,000 \\\text { Current portion of long-term borrowings } &6,000 \\\text { Inventory } &18,000 \\\text { Non-current assets } &60,000\end{array}$

A) 1.15:1
B) 1.44:1
C) 1.73:1
D) 3.11:1

Answer 3

1.44:1

Question 4

Based on the below figures, what is the current ratio?
$\begin{array}{lr}&£ \\\text { Trade payables } & 35,000 \\\text { Trade receivables } & 28,000 \\\text { Cash and cash equivalents } & 15,000 \\\text { Taxation payable } & 12,000 \\\text { Prepayments } & 4,000 \\\text { Inventory } & 14,000 \\\text { Accruals } & 6,000\end{array}$

A) 1.15:1
B) 1.21:1
C) 1.24:1
D) 1.30:1

Question 5

Based on the below figures, what is the quick ratio?
$\begin{array}{c}&£ \\\text { Trade payables } &40,000 \\\text {Trade receivables } &45,000 \\\text { Cash and cash equivalents } &15,000 \\\text { Taxation payable } &20,000 \\\text { The portion of long-term borrowings repayable } &15,000 \\\text { within 12 months of the year end date } &\\\text {Inventory } &20,000\end{array}$

A) 0.80:1
B) 1:1
C) 1.07:1
D) 1.25:1

Question 6

Based on the below figures, what is the quick ratio?
$\begin{array}{lr}&£ \\\text { Trade payables } & 35,000 \\\text { Trade receivables } & 28,000 \\\text { Cash and cash equivalents } & 15,000 \\\text { Taxation repayable to the company } & 12,000 \\\text { Inventory } & 14,000 \\\text { Accruals } & 6,000\end{array}$

A) 0.81:1
B) 1.05:1
C) 1.34:1
D) 1.68:1

Question 7

At 31 October 2019, Tasha Limited has inventory of £60,000, trade payables of £80,000, cash at the bank of £24,500, trade receivables of £88,000, cash in hand of £2,500 and current tax payable of £20,000. Tasha Limited also has a loan of £125,000 which is due for repayment by 5 equal annual instalments commencing on 30 September 2020. What is Tasha Limited's quick ratio?

A) 0.51:1
B) 0.90:1
C) 0.92:1
D) 1.40:1

Question 8

Based on the below figures, what are the inventory days?
$\begin{array}{c}& £ \\\text { Inventory } &5,400 \\\text { Trade payables } &7,560 \\\text { Trade receivables } &9,000 \\\text { Sales } &65,700 \\\text { Cost of sales } &43,800\end{array}$

A) 30 days
B) 45 days
C) 50 days
D) 63 days

Question 9

Based on the below figures, what are the inventory days?
$\begin{array}{c}&£ \\\text { Opening inventory } &5,400 \\\text { Trade payables } &9,000 \\\text { Purchases (all on credit) } &45,000 \\\text { Closing inventory } &7,200\end{array}$

A) 45.63 days
B) 58.40 days
C) 60.83 days
D) 76.04 days

Question 10

Based on the below figures, what are the receivables days?
$\begin{array}{lr}&£ \\\text { Inventory } & 63,700 \\\text { Trade payables } & 50,960 \\\text { Trade receivables } & 114,400 \\\text { Revenue } & 949,000 \\\text { Cost of sales } & 664,300\end{array}$

A) 19.60 days
B) 28.00 days
C) 35.00 days
D) 44.00 days

Question 11

Based on the below figures, what are the receivables days?
$\begin{array}{c}& £ \\\text { Trade receivables } &72,000 \\\text {Prepayments } &30,000 \\\text { Cash sales } &328,500 \\\text { Credit sales } &547,500\end{array}$

A) 30.00 days
B) 42.50 days
C) 48.00 days
D) 68.00 days

Question 12

Based on the below figures, what are the payables days?
$\begin{array}{lr} & £ 000 \\\text { Inventory } & 1,800 \\\text { Trade payables } & 3,780 \\\text { Trade receivables } & 4,050 \\\text { Sales } & 49,275 \\\text { Cost of sales } & 32,850\end{array}$

A) 20 days
B) 28 days
C) 30 days
D) 42 days

Question 13

Based on the below figures, what are the payables days?
$\begin{array}{c}& £ \\\text { Trade payables } &15,000 \\\text { Taxation payable } &10,000 \\\text { Cash purchases } &28,750 \\\text { Credit purchases } &121,250\end{array}$

A) 36.50 days
B) 45.15 days
C) 60.83 days
D) 75.26 days

Question 14

Based on the below figures, what is the gearing ratio?
$\begin{array}{lr} & £ 000 \\\text { Current assets } & 15,000 \\\text { Non-current assets } & 35,000 \\\text { Non-current liability borrowings } & 18,000 \\\text { Equity } & 20,000 \\\text { Current portion of long-term borrowings } & 2,000 \\\text { Other non-current and current liabilities } & 10,000\end{array}$

A) 40%
B) 90%
C) 100%
D) 150%

Question 15

Based on the below figures, what is the interest cover ratio?
$\begin{array}{lr} & £ 000 \\\text { Sales } & 15,000 \\\text { Gross Profit } & 5,000 \\\text { Operating Profit } & 3,000 \\\text { Finance Expense } & 500 \\\text { Profit Before Taxation } & 2,500\end{array}$

A) 3 times
B) 5 times
C) 6 times
D) 10 times

Question 16

Goggle Limited has the following figures in its statement of profit or loss for the year ended 31 October 2019:
$\begin{array}{ll}& £ \\\text { Gross profit } &84,000 \\\text { Administration expenses } &24,000 \\\text {Bank overdraft interest } &600 \\\text { Bank loan interest } &2,400 \\\text { Selling and distribution costs } &21,000 \\\text { Profit before taxation } &36,000 \\\text { Taxation } &9,000\end{array}$

A) 9 times
B) 12 times
C) 13 times
D) 15 times

Question 17

Based on the below figures, what is the debt ratio?
$\begin{array}{lc} & £ 000 \\\text { Non-current assets } & 22,000 \\\text { Current assets } & 12,000 \\\text { Equity } & 14,000 \\\text { Non-current liabilities } & 10,000 \\\text { Current liabilities } & 10,000\end{array}$

A) 0.45:1
B) 0.59:1
C) 0.70:1
D) 0.83:1

Question 18

Bunye Limited has the following balances in the statement of financial position at 31 December 2019.
$\begin{array}{lr}& £ \\\text { Property, plant and equipment } & 423,000 \\\text { Trade payables } & 88,000 \\\text { Retained earnings } & 186,000 \\\text { Borrowings (all non-current liabilities) } & 150,000 \\\text { Inventory } & 29,000 \\\text { Bank overdraft } & 4,200 \\\text { Trade and other receivables } & 57,500 \\\text { Taxation payable } & 18,800 \\\text { Non-current asset investments } & 22,500 \\\text { Share capital } & 35,000 \\\text { Share premium } & 50,000\end{array}$ Based on the above figures, what is the debt ratio?

A) 0.34:1
B) 0.49
C) 0.57
D) 2.04:1