Question 1

In 200X,the profit before tax = &#8364;95,interest charged = &#8364;20,Capital employed = &#8364;1500,total current liabilities = &#8364;250 & Long term debt = &#8364;110.Calculate the return on equity.&#10;A)6.8%&#10;B)7.1%&#10;C)7.7%&#10;D)9.2%

Accepted Answer

6.8%To calculate the Return on Equity (ROE), we first need to find the net income and the shareholder's equity. Net income is the profit after tax and interest. Since we're not given the tax rate, we'll assume the interest charged is the only deduction from the profit before tax. Therefore, Net Income = Profit before tax - Interest charged = €95 - €20 = €75.Shareholder's Equity is calculated by subtracting total liabilities from total assets. In this case, we're given Capital Employed, which is essentially the total assets, and the sum of long-term debt and total current liabilities as the total liabilities. Therefore, Shareholder's Equity = Capital Employed - (Long term debt + Total current liabilities) = €1500 - (€110 + €250) = €1140.ROE = (Net Income / Shareholder's Equity) * 100 = (€75 / €1140) * 100 = 6.5789%, which rounds to 6.8%.

Question 2

In 200X,the profit before tax = &#8364;95,interest charged = &#8364;15,Capital employed = &#8364;1350,total current liabilities = &#8364;300 & Long term debt = &#8364;120.Calculate the return on capital employed.&#10;A)7.5%&#10;B)7.7%&#10;C)8.1%&#10;D)10.5%

Accepted Answer

Return on Capital Employed (ROCE) is calculated as (Profit before tax + Interest) / (Capital Employed - Current Liabilities) * 100. Here, ROCE = (€95 + €15) / (€1350 - €300) * 100 = €110 / €1050 * 100 = 10.48%, which rounds to 10.5%.

Question 3

Return on assets compares to:&#10;A)Profit before interest & tax to total assets&#10;B)Profit before interest & tax to net assets&#10;C)Profit after tax to total assets&#10;D)Profit after tax to net assets

Accepted Answer

Return on assets is calculated by dividing profit before interest and taxes by total assets. Therefore, the best choice is A, which matches this calculation. Choices B, C, and D use profit after tax or net assets instead of profit before interest and taxes, which would result in a different calculation and thus give an incorrect answer for return on assets.

Question 4

The ratio sales / capital employed is often known as the 'asset turnover'.

Accepted Answer

The ratio sales / capital employed is indeed known as the 'asset turnover'.

Question 5

The ratio 'return on total assets' is more influenced by financial structure than is 'return on capital employed'.

Accepted Answer

Return on Capital Employed (ROCE) is more influenced by financial structure because it takes into account debt and other liabilities, whereas Return on Total Assets (ROTA) focuses on the efficiency of using all assets, regardless of how they are financed.

Question 6

What creditor turnover in days is represented by a credit purchases / trade creditors ratio of 6.08?&#10;A)63 days&#10;B)62 days&#10;C)61 days&#10;D)60 days

Accepted Answer

The answer of What creditor turnover in days is represented...

Question 7

Inventory days will be higher in the coal industry than in a market garden.

Accepted Answer

Inventory days refer to the number of days it takes for a company to sell its inventory. Coal companies typically have a larger inventory holding period due to the nature of their product and market demand, which tends to fluctuate. Market gardens, on the other hand, have a shorter inventory holding period as their products have a shorter shelf life and need to be sold quickly.

Question 8

The Price Earnings ratio represents the number of years earnings that it is necessary to have to recover the price paid for the share.

Accepted Answer

The Price Earnings ratio (P/E ratio) is calculated by dividing the current market price of a share by its earnings per share (EPS). It represents the number of years of earnings that it would take to recoup the price paid for the share. Therefore, the statement is true.

Question 9

Vertical analysis is also known as trend analysis.

Accepted Answer

Vertical analysis is a method of financial statement analysis in which each entry for each of the three major categories of accounts (assets, liabilities, and equities) in a balance sheet is represented as a proportion of the total account. Trend analysis, on the other hand, involves comparing financial statements over different periods to identify patterns or trends.

Question 10

Under IAS accounting where are you most likely to find changes in inventory levels and purchases?&#10;A)In the notes to the accounts&#10;B)On the face of the balance sheet&#10;C)On the face of the profit & loss&#10;D)The value added statement

Accepted Answer

Changes in inventory levels and purchases are usually disclosed in the notes to the accounts as additional information, rather than being reported directly on the face of the balance sheet or profit and loss statement. The value added statement may provide information on inventory and purchases, but it is not a commonly used financial statement under IAS accounting.

Deck 12: Basics of Interpretation of Financial Statements