Question 1

Reliability of ratios depend upon the reliability of financial data.
A)true
B)false
C)only a
D)both a and b.

Accepted Answer

The reliability of ratios indeed depends on the reliability of financial data because if the underlying data is inaccurate or misleading, the ratios calculated from this data will also be unreliable.

Question 2

Ratio analysis ensures effective cost control.
A)true
B)false
C)none of the above
D)may be both

Accepted Answer

Ratio analysis helps in identifying areas where costs can be reduced, thereby ensuring effective cost control.

Question 3

An ideal current ratio is considered as 1:2
A)false
B)true
C)may be true
D)both a and b

Accepted Answer

The ideal current ratio, which measures a company's ability to pay off its short-term liabilities with its short-term assets, is generally considered to be 2:1, not 1:2. This means a company should have twice as many assets as liabilities.

Question 4

The ratios which reveal the final result of the managerial policies and performance is…………..
A)turnover ratios.
B)profitability ratios.
C)short term solvency ratio.
D)long term solvency ratio.

Accepted Answer

Profitability ratios reveal the final result of managerial policies and performance by showing the company's ability to generate profits from its operations. These ratios, such as net profit margin, return on assets, and return on equity, directly reflect the effectiveness of management's strategies and operational execution.

Question 5

Return on investment is a .
A)turnover ratios.
B)short term solvency ratio.
C)profitability ratios.
D)long term solvency ratio.

Accepted Answer

Return on investment (ROI) is considered a profitability ratio because it measures the efficiency of an investment in generating profit relative to its cost.

Question 6

Net profit ratio is a .
A)turnover ratio.
B)long term solvency ratio.
C)short term solvency ratio
D)profitability ratio.

Accepted Answer

Net profit ratio is a profitability ratio that measures the net profit generated from sales, indicating how efficiently a company is managing its operations and expenses.

Question 7

Stock turnover ratio is a .
A)turnover ratio.
B)profitability ratio.
C)short term solvency ratio.
D)long term solvency ratio.

Accepted Answer

The stock turnover ratio is a type of turnover ratio that measures how efficiently a company manages its inventory by comparing the cost of goods sold with its average inventory for a period.

Question 8

Current ratio is a
A)short-term solvency ratio.
B)long-term solvency ratio.
C)profitability ratio.
D)turnover ratio.

Accepted Answer

The current ratio is a short-term solvency ratio that measures a company's ability to pay off its short-term liabilities with its short-term assets.

Question 9

Proprietary ratio is a .
A)short-term solvency ratio.
B)long-term solvency ratio.
C)profitability ratio.
D)turnover ratio.

Accepted Answer

The proprietary ratio is a long-term solvency ratio that indicates the proportion of a company's total assets financed by shareholders' equity. It reflects the company's financial stability and leverage.

Question 10

Fixed assets ratio is a
A)short-term solvency ratio.
B)long-term solvency ratio.
C)profitability ratio.
D)turnover ratio.

Accepted Answer

Fixed assets ratio, also known as the fixed asset turnover ratio, is considered a long-term solvency ratio because it measures a company's ability to generate net sales from fixed-asset investments - specifically property, plant, and equipment (PP&E) - which are long-term in nature.

Question 11

Fixed assets turnover ratio is a
A)short-term solvency ratio.
B)long-term solvency ratio.
C)profitability ratio.
D)turnover ratio.

Accepted Answer

The fixed assets turnover ratio is a turnover ratio because it measures how efficiently a company uses its fixed assets to generate sales.

Question 12

The ratio which measures the profit in relation to capital employed is known as
A)return on investment.
B)gross profit ratio.
C)operating ratio.
D)operating profit ratio.

Accepted Answer

Return on Investment (ROI) measures the profit in relation to capital employed, indicating the efficiency of the investment.

Question 13

The ratio which determines the profitability from the shareholder's point of view is .
A)return on investment.
B)gross profit ratio.
C)return on shareholders funds.
D)operating profit ratio.

Accepted Answer

The return on shareholders' funds (equity) ratio is specifically designed to measure the profitability from the shareholders' perspective, as it shows how effectively a company uses the money invested by its shareholders to generate profits.

Question 14

Return on equity is also called
A)return on investment.
B)gross profit ratio.
C)return on shareholders funds.
D)return on net worth.

Accepted Answer

The answer of Return on equity is also called
A)return on...

Question 15

Preliminary expenses is an example of
A)fixed assets.
B)current assets.
C)fictitious assets.
D)current liabilities.

Accepted Answer

Preliminary expenses are considered fictitious assets because they do not have a physical form or realizable value but are expenses incurred during the formation of a company, which are written off over a period of time against the company's earnings.

Question 16

Prepaid expenses is an example of .
A)fixed assets.
B)current assets.
C)fictitious assets.
D)current liabilities.

Accepted Answer

Prepaid expenses are considered current assets because they represent payments made in advance for goods or services to be received in the near future, typically within one year.

Question 17

The ratio which is calculated to measure the productivity of total assets is
A)return on equity.
B)return on share holders funds.
C)return on total assets.
D)return on equity share holders' funds.

Accepted Answer

Return on total assets (ROTA) is the ratio used to measure the productivity of total assets, indicating how efficiently a company uses its assets to generate earnings.

Question 18

The ratio which shows the proportion of profits retained in the business out of the current year's profits is
A)retained earnings ratio.
B)pay out ratio
C)earnings per share.
D)price earnings ratio.

Accepted Answer

The retained earnings ratio shows the proportion of profits that are retained in the business rather than distributed to shareholders as dividends. It is a measure of how much of the current year's profits are reinvested in the company.

Question 19

The ratio which indicates earnings per share reflected by the market price is .
A)retained earnings ratio.
B)pay out ratio.
C)earnings per share.
D)price earnings ratio.

Accepted Answer

The price earnings ratio (P/E ratio) indicates the market price of a share relative to its earnings per share, showing how much investors are willing to pay per dollar of earnings.

Question 20

The ratio establishes the relationship between profit before interest and tax and fixed interest charges is .
A)interest cover ratio.
B)fixed dividend cover ratio.
C)debt service coverage ratio.
D)dividend yield ratio.

Accepted Answer

The interest cover ratio, also known as the times interest earned ratio, measures a company's ability to meet its interest payments on outstanding debt with its operating profit. It establishes the relationship between profit before interest and taxes (EBIT) and fixed interest charges.

Quiz 8: Ratio Analysis and Financial Performance Metrics

Reliability of ratios depend upon the reliability of financial data.

Ratio analysis ensures effective cost control.

An ideal current ratio is considered as 1:2

The ratios which reveal the final result of the managerial policies and performance is…………..

Return on investment is a .

Net profit ratio is a .

Stock turnover ratio is a .

Current ratio is a

Proprietary ratio is a .

Fixed assets ratio is a

Fixed assets turnover ratio is a

The ratio which measures the profit in relation to capital employed is known as

The ratio which determines the profitability from the shareholder's point of view is .

Return on equity is also called

Preliminary expenses is an example of

Prepaid expenses is an example of .

The ratio which is calculated to measure the productivity of total assets is

The ratio which shows the proportion of profits retained in the business out of the current year's profits is

The ratio which indicates earnings per share reflected by the market price is .

The ratio establishes the relationship between profit before interest and tax and fixed interest charges is .