Deck 6: Ratio Analysis 2: 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 finished goods on credit to customers = Manufacturers
Turn raw materials into finished goods = Manufacturers

Question 2

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

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

Answer 2

0.90:1

Question 3

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

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

Answer 3

1.44:1

Question 4

$$\begin{array}{l}\begin{array} {lll } &£\\\text {Trade payales}&35,000\\\text {Trade receivales}&28,000\\\text {cash and cash equivalents}&15,000\\\text {Taxation payale}&12,000\\\text {Prepayments}&4,000\\\text {Inventory}&14,000\\\text {Accuals}&6,000\\\end{array}\end{array}$$ Based on the above figures, what is the current ratio?

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

Question 5

At 31 December 2021, Martha Limited has inventory of £48,000, trade payables of £68,000, cash at the bank of £22,000, trade receivables of £81,000, cash in hand of £1,000 and current tax payable of £15,000. Martha Limited also has a loan of £60,000 which is due for repayment by 5 annual instalments commencing on 30 June 2022. What is Martha Limited's current ratio?

A) 1.06:1
B) 1.59:1
C) 1.60:1
D) 1.83:1

Question 6

$$\begin{array}{l}\begin{array} {lll } &£\\\text {Trade payales}&40,000\\\text {Trade receivales}&45,000\\\text {cash and cash equivalents}&15,000\\\text {Taxation parale}&20,000\\\text {The partion af lang-term barrawings repayable}&15,000\\ \text {15,000 within 12 manths of the year end date}\\\text {Irvertory}&20,000\\\end{array}\end{array}$$ Based on the above figures, what is the quick ratio?

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

Question 7

$$\begin{array}{l}\begin{array} {lll } &£\\\text {Trade payales}&35,000\\\text {Trade receivales}&28,000\\\text {cash and cash equivalents}&15,000\\\text {Taxation repayale to the campary}&12,000\\\text {Inventory}&14,000\\\text {Accruals}&6,000\\\end{array}\end{array}$$ Based on the above figures, what is the quick ratio?

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

Question 8

At 31 October 2021, 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 2022. What is Tasha Limited's quick ratio?

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

Question 9

$$\begin{array}{l}\begin{array} {lll } &£\\\text {Inentory}&5,400\\\text {Trade payales}&7,560\\\text {Trade receizales}&9,000\\\text {sales}&65,700\\\text {Cost of sales}&43,800\\\end{array}\end{array}$$ Based on the above figures, what are the inventory days?

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

Question 10

$$\begin{array}{l}\begin{array} {lll }&£\\ \text {Opening irventory}&5,400\\\text {Trade payales}&9,000\\\text {Purchases (all an credit)}&45,000\\\text {Glasing irventary}&7,200\\\end{array}\end{array}$$ Based on the above figures, what are the inventory days?

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

Question 11

$$\begin{array}{l}\begin{array} {lll }&£\\ \text {Inentory}&63,700\\\text {Trade payables}&50,960\\\text {Trade receivales}&114,400\\\text {Rewenue}&949,000\\\text {Cost of sales}&664,300\\\end{array}\end{array}$$ Based on the above figures, what are the receivables days?

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

Question 12

$$\begin{array}{l}\begin{array} {lll }&£\\ \text {Trade receivales}&72,00\\\text {prepayments}&30,000\\\text {Cash sales}&328,500\\\text {Credit sales}&547,500\\\end{array}\end{array}$$ Based on the above figures, what are the receivables days?

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

Question 13

$$\begin{array}{l}\begin{array} {lll }&£000\\ \text {Inentory}&1,800\\\text {Trade payales}&3,780\\\text {Trade receizales}&4,050\\\text {sales}&49,275\\\text {Cost of sales}&32,850\\\end{array}\end{array}$$ Based on the above figures, what are the payables days?

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

Question 14

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

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

Question 15

$$\begin{array}{l}\begin{array} {lll } &£000\\\text {Current assets}&15,000\\\text {Non-current assets}&35,000\\\text {Nan-currentliability barrawings}&18,000\\\text {Equity}&20,000\\\text {Current partion of lang-term aorrowings}&2,000\\\text {Other non-current and current liabilities}&10,000\\\end{array}\end{array}$$ Based on the above figures, what is the gearing ratio?

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

Question 16

$$\begin{array}{l}\begin{array} {lll } &£000\\\text {Sales}&15,000\\\text {Grass Prafit}&5,000\\\text {Operating Prafit}&3,000\\\text {Finance Expense}&500\\\text {Profit Elofore Taxation}&2,500\\\end{array}\end{array}$$ Based on the above figures, what is the interest cover ratio?

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

Question 17

Goggle Limited has the following figures in its statement of profit or loss for the year ended 31 October 2021
$$\begin{array}{l}\begin{array} {lll } &£\\\text {Grass profit}&84,000\\\text {Administration expenses}&24,000\\\text {Bank overdraft interest}&600\\\text {bank laan interest}&2,400\\\text {Selling and distribution casts}&21,000\\\text {Prafit before taxatian}&36,000\\\text {Taxation}&9,000\\\end{array}\end{array}$$ Based on the above figures, what is Goggle Limited's interest cover ratio for the year ended 31 October 2021?

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

Question 18

$$\begin{array}{l}\begin{array} {lll } &£000\\\text {Nan-current assets}&22,000\\\text {current assets}&12,000\\\text {Equity}&14,000\\\text {Nan-Eurrentliabilities}&10,00\\\text {Current liabilities}&10,000\\\end{array}\end{array}$$ Based on the above figures, what is the debt ratio?

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

Question 19

Bunye Limited has the following balances in the statement of financial position at 31 December 2021.
$$\begin{array}{l}\begin{array} {lll } &£\\\text {Praperty, plant and equipment}&423,000\\\text {Trade payables}&88,000\\\text {Retained earnings}&186,000\\\text {Earrawings (all nan-current liabilities)}&150,000\\\text {Inentory}&29,000\\\text {bank overdraft}&4,200\\\text {Trade and ather receivables}&57,500\\\text {Taxation payable}&18,800\\\text {Nan-current asset irvestments}&22,500\\\text {share iapital}&35,000\\\text {Share premium}&50,000\\\end{array}\end{array}$$ Based on the above figures, what is the debt ratio?

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

Question 20

Arthur Limited has the following balances in the statement of financial position at 31 January 2022.
$$\begin{array}{l}\begin{array} {lll } &£000\\\text {Praperty, plant and equipment}&525\\\text {Trade payales}&100\\\text {bank laan due for repayment in 5 years' time}&200\\\text {Inventory}&56\\\text {bank overdraft}&10\\\text {Trade and ather receivales}&75\\\text {Taxation payable}&20\\\text {Non-current asset investments}&18\\\text {Prepayments}&20\\\end{array}\end{array}$$ Based on the above figures, what is the gearing %?

A) 30.26%
B) 54.95%
C) 57.69%
D) 63.64%

Question 21

Zoe Limited has a cash conversion cycle of 30 days, receivables days of 40 and payables days of 20. What is Zoe Limited's inventory days figure?

A) 10 days
B) 20 days
C) 50 days
D) 90 days

Question 22

Smyrna Limited has the following liabilities in its statement of financial position:
$$\begin{array}{l}\begin{array} {lll } &£000\\\text {bank loan due for repayment in 3 years' time }&150\\\text {bond payment due in 6 months' time}&50\\\end{array}\end{array}$$ The company has a gearing % of 50%. Based on these figures, what is Smyrna Limited's equity?

A) £75,000
B) £100,000
C) £300,000
D) £400,000

Question 23

Odessa Limited has the following profit figures in its statement of profit or loss for its latest year of trading:
$$\begin{array}{l}\begin{array} {lll } &£\\\text {Gross profit}&500,000\\\text {Operating profit}&125,000\\\text {Profit befare tax}&105,000\\\text {Profit far the year}&85,000\\\end{array}\end{array}$$ The company has interest cover of 5 times. Based on these figures, what is Odessa Limited's finance expense for the year?

A) £100,000
B) £25,000
C) £21,000
D) £17,000