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Unit 3: Ratio Analysis - Practice Quiz

DEACC506 60 Questions
0 Correct 0 Wrong 60 Left
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1 The Current Ratio is calculated as:

Liquidity Ratios Easy
A.
B.
C.
D.

2 The ideal or standard Current Ratio is generally considered to be:

Liquidity Ratios Easy
A.
B.
C.
D.

3 Which of the following is excluded while calculating the Quick Ratio?

Liquidity Ratios Easy
A. Debtors
B. Cash in hand
C. Inventory (Stock)
D. Bank balance

4 The Quick Ratio is also popularly known as the:

Liquidity Ratios Easy
A. Working Capital Ratio
B. Gross Profit Ratio
C. Proprietary Ratio
D. Acid Test Ratio

5 The Debt-Equity Ratio is computed as:

Solvency Ratios Easy
A.
B.
C.
D.

6 Solvency Ratios are primarily used to assess a firm's ability to:

Solvency Ratios Easy
A. Meet its short-term obligations
B. Distribute dividends quickly
C. Generate sales revenue
D. Meet its long-term obligations

7 The Proprietary Ratio establishes a relationship between:

Solvency Ratios Easy
A. Shareholders' funds and total assets
B. Current assets and current liabilities
C. Debt and equity
D. Net profit and sales

8 The Interest Coverage Ratio measures a firm's ability to pay:

Solvency Ratios Easy
A. Wages and salaries to employees
B. Interest on debt out of its earnings
C. Its current liabilities on time
D. Dividends to shareholders

9 The Gross Profit Ratio is calculated as:

Profitability Ratios Easy
A.
B.
C.
D.

10 Which ratio indicates the overall profitability of a business relative to its sales?

Profitability Ratios Easy
A. Current Ratio
B. Inventory Turnover Ratio
C. Debt-Equity Ratio
D. Net Profit Ratio

11 Return on Investment (ROI) is generally expressed as the relationship between profit and:

Profitability Ratios Easy
A. Net sales
B. Current assets
C. Capital employed
D. Cost of goods sold

12 Earnings Per Share (EPS) is calculated by dividing net profit available to equity shareholders by:

Profitability Ratios Easy
A. Number of preference shares
B. Total capital employed
C. Number of equity shares
D. Total sales revenue

13 The Inventory (Stock) Turnover Ratio is calculated as:

Turnover Ratios Easy
A.
B.
C.
D.

14 A high Debtors (Receivables) Turnover Ratio generally indicates:

Turnover Ratios Easy
A. High level of long-term debt
B. Slow collection of debts
C. Excess inventory holding
D. Efficient collection of debts

15 Turnover Ratios are also commonly referred to as:

Turnover Ratios Easy
A. Coverage Ratios
B. Solvency Ratios
C. Liquidity Ratios
D. Activity or Efficiency Ratios

16 Which ratio measures how effectively a company uses its total assets to generate sales?

Turnover Ratios Easy
A. Net Profit Ratio
B. Quick Ratio
C. Proprietary Ratio
D. Total Assets Turnover Ratio

17 Du-Pont Analysis breaks down Return on Equity (ROE) into which key components?

Du-Pont Analysis Easy
A. Net profit margin, asset turnover, and financial leverage — combining profitability, efficiency, and capital structure into one integrated framework
B. Only current ratio and quick ratio
C. Only gross profit and interest coverage
D. Only net profit margin and sales

18 The main purpose of Du-Pont Analysis is to:

Du-Pont Analysis Easy
A. Calculate the current ratio of a firm
B. Measure only the liquidity position
C. Identify the drivers behind a firm's return on equity
D. Determine the number of equity shares

19 One of the main objectives of ratio analysis is to:

Importance and Objectives Easy
A. Physically count the closing inventory
B. Record daily cash transactions
C. Prepare the journal entries of a firm
D. Assess the financial performance and position of a firm

20 Which of the following is a limitation of ratio analysis?

Importance and Objectives Easy
A. It replaces the need for financial statements entirely
B. It records every financial transaction accurately
C. It guarantees future profitability
D. It ignores price-level changes and qualitative factors

21 A company has Current Assets of , Inventory of , and Current Liabilities of . What is its Quick Ratio?

Liquidity Ratios Medium
A.
B.
C.
D.

22 A firm's Current Ratio is and Current Liabilities are . If it pays off of creditors, what is the new Current Ratio?

Liquidity Ratios Medium
A.
B.
C.
D.

23 Which of the following transactions will improve (increase) a Current Ratio that is currently ?

Liquidity Ratios Medium
A. Purchase of goods on credit
B. Payment to creditors in cash
C. Cash collected from debtors
D. Cash sale of goods at cost

24 A company has Debt of and Equity (Shareholders' Funds) of . What is its Debt-to-Equity Ratio?

Solvency Ratios Medium
A.
B.
C.
D.

25 A firm has EBIT of and interest expense of . What is its Interest Coverage Ratio?

Solvency Ratios Medium
A. times
B. times
C. times
D. times

26 Total Assets are and Total Debt is . What is the Proprietary Ratio?

Solvency Ratios Medium
A.
B.
C.
D.

27 A high Debt-to-Equity Ratio generally indicates that a company:

Solvency Ratios Medium
A. Is highly profitable in its core operations
B. Uses mostly owner funds with minimal borrowing
C. Relies heavily on borrowed funds and carries higher financial risk
D. Has strong short-term liquidity and low risk

28 Net Sales are , Cost of Goods Sold is . What is the Gross Profit Ratio?

Profitability Ratios Medium
A.
B.
C.
D.

29 A company earns Net Profit after tax of on Net Sales of . What is the Net Profit Ratio?

Profitability Ratios Medium
A.
B.
C.
D.

30 A firm has EBIT of and Capital Employed of . What is its Return on Capital Employed (ROCE)?

Profitability Ratios Medium
A.
B.
C.
D.

31 If Gross Profit Ratio is and Net Sales are , what is the Cost of Goods Sold?

Profitability Ratios Medium
A.
B.
C.
D.

32 Cost of Goods Sold is and Average Inventory is . What is the Inventory Turnover Ratio?

Turnover Ratios Medium
A. times
B. times
C. times
D. times

33 Credit Sales are and Average Debtors are . What is the average collection period (in days, assuming 360 days)?

Turnover Ratios Medium
A. days
B. days
C. days
D. days

34 A higher Inventory Turnover Ratio generally indicates:

Turnover Ratios Medium
A. Slow conversion of stock into sales
B. Efficient inventory management and faster movement of stock
C. Excess accumulation of unsold inventory
D. Rising levels of obsolete goods

35 Net Sales are and Fixed Assets are . What is the Fixed Assets Turnover Ratio?

Turnover Ratios Medium
A. times
B. times
C. times
D. times

36 Under the Du-Pont model, Return on Equity (ROE) is decomposed into which three components?

Du-Pont Analysis Medium
A. Asset Turnover, Gross Margin, and Proprietary Ratio
B. Gross Margin, Current Ratio, and Debt Ratio
C. Net Profit Margin, Asset Turnover, and Equity Multiplier
D. Net Profit Margin, Quick Ratio, and Interest Coverage

37 A firm has Net Profit Margin of , Asset Turnover of , and an Equity Multiplier of . What is its Return on Equity (ROE) using Du-Pont analysis?

Du-Pont Analysis Medium
A.
B.
C.
D.

38 In the Du-Pont framework, if two firms have the same ROE but Firm A has a higher Equity Multiplier than Firm B, we can infer that:

Du-Pont Analysis Medium
A. Firm A generates more profit per rupee of sales
B. Firm A has higher operating efficiency
C. Firm A uses its assets more productively
D. Firm A relies more on financial leverage to achieve the same return

39 Which of the following is a key limitation of ratio analysis that users must keep in mind?

Importance and Objectives Medium
A. Ratios provide future cash flow certainty
B. Ratios guarantee inter-firm comparability regardless of accounting policies
C. Ratios ignore price-level changes and qualitative factors
D. Ratios eliminate the need for financial statements

40 A short-term creditor deciding whether to extend trade credit would be MOST interested in which category of ratios?

Importance and Objectives Medium
A. Profitability Ratios
B. Liquidity Ratios
C. Fixed Assets Turnover Ratios
D. Du-Pont components

41 A company has a current ratio of and a quick ratio of . Its current liabilities are . If the company purchases inventory worth on credit, what will be the new current ratio?

Liquidity Ratios Hard
A.
B.
C.
D.

42 Given current ratio and quick ratio , with working capital of , what is the value of inventory (assuming no prepaid expenses)?

Liquidity Ratios Hard
A.
B.
C.
D.

43 Which of the following transactions will improve (increase) the quick ratio of a firm that currently has a quick ratio greater than ?

Liquidity Ratios Hard
A. Issue of shares for cash
B. Purchase of inventory on credit
C. Payment to a trade creditor in cash
D. Cash sale of inventory at cost

44 A firm has a debt-equity ratio of and total debt of . It issues additional equity of and uses the proceeds to repay debt. What is the new debt-equity ratio?

Solvency Ratios Hard
A.
B.
C.
D.

45 The interest coverage ratio of a company is times and its debt carries interest of . If the corporate tax rate is , what is the profit after tax?

Solvency Ratios Hard
A.
B.
C.
D.

46 A company reports Total Assets of , Current Liabilities of , and Shareholders' Funds of . What is its proprietary ratio and debt to capital-employed (long-term debt) position?

Solvency Ratios Hard
A. Proprietary ratio ; long-term debt
B. Proprietary ratio ; long-term debt
C. Proprietary ratio ; long-term debt
D. Proprietary ratio ; long-term debt

47 A firm's gross profit ratio is and its net profit ratio is . If revenue from operations is , and there is no non-operating income, what are the indirect (operating) expenses?

Profitability Ratios Hard
A.
B.
C.
D.

48 Return on Capital Employed (ROCE) is and capital employed is . Interest on long-term debt is and tax rate is . Equity shareholders' funds are . What is the Return on Equity (ROE)?

Profitability Ratios Hard
A. Approximately
B. Approximately
C. Approximately
D. Approximately

49 A company has an operating ratio of . Which statement about its operating profit ratio is correct, and what does an increase in operating ratio imply?

Profitability Ratios Hard
A. Operating profit ratio is ; a higher operating ratio implies lower operating efficiency
B. Operating profit ratio is ; a higher operating ratio implies lower operating efficiency
C. Operating profit ratio is ; a higher operating ratio implies higher operating efficiency
D. Operating profit ratio is ; a higher operating ratio implies higher operating efficiency

50 A firm's inventory turnover ratio is times. Opening inventory is and closing inventory is . If the gross profit ratio is on cost, what is the revenue from operations?

Turnover Ratios Hard
A.
B.
C.
D.

51 Trade receivables turnover ratio is times and revenue from operations (all credit) is . If closing receivables are more than opening receivables, what are the closing trade receivables?

Turnover Ratios Hard
A.
B.
C.
D.

52 The working capital turnover ratio of a firm is times and revenue from operations is . Current liabilities are . What is the current ratio?

Turnover Ratios Hard
A.
B.
C.
D.

53 A company's trade payables turnover ratio is times based on net credit purchases of . What is the average payment period (in days, assuming 360 days)?

Turnover Ratios Hard
A. days
B. days
C. days
D. days

54 Under the DuPont framework, ROE $= $ Net Profit Margin Asset Turnover Equity Multiplier. A firm has net profit margin , asset turnover , and equity multiplier . If it doubles its equity multiplier while margin and turnover stay constant, what happens to ROE?

Du-Pont Analysis Hard
A. ROE rises from to
B. ROE stays at
C. ROE rises from to
D. ROE rises from to

55 Two firms have identical ROE of . Firm A: net margin , asset turnover , equity multiplier . Firm B: net margin , asset turnover , equity multiplier . Which interpretation is most accurate?

Du-Pont Analysis Hard
A. Both firms are identical in every driver of ROE and cannot be differentiated
B. Firm A is more leveraged and therefore riskier than Firm B despite the same ROE
C. Firm A relies more on profitability per rupee of sales, while Firm B relies more on operating efficiency in asset utilisation to reach the same ROE
D. Firm B carries more financial risk because its equity multiplier is higher than Firm A

56 A firm has ROA (Return on Total Assets) of and an equity multiplier of . Using the DuPont relation ROE $= $ ROA Equity Multiplier, what is the ROE, and what is the equity-to-assets ratio?

Du-Pont Analysis Hard
A. ROE ; equity-to-assets
B. ROE ; equity-to-assets
C. ROE ; equity-to-assets
D. ROE ; equity-to-assets

57 A company's EBIT is , capital employed is , and total assets are . If a competitor has the same EBIT but ROCE of , what is the difference in capital employed between the two firms?

Profitability Ratios Hard
A.
B.
C.
D.

58 A firm with a current ratio of exactly pays a current liability using cash. What is the effect on the current ratio?

Liquidity Ratios Hard
A. It decreases below
B. It increases above
C. It becomes zero
D. No change; it remains

59 A company's total assets to debt ratio is and its total debt is . If it revalues fixed assets upward by (increasing total assets), what is the new total assets to debt ratio?

Solvency Ratios Hard
A.
B.
C.
D.

60 A financial analyst notes that a company shows an improving current ratio year over year but a deteriorating quick ratio over the same period. Which conclusion is most defensible regarding the limitations and objectives of ratio analysis?

Importance and Objectives Hard
A. Rising inventory levels are likely inflating the current ratio while true short-term liquidity is weakening, so ratios must be read together rather than in isolation
B. The two ratios are contradictory and therefore both must be calculated incorrectly by the firm
C. Ratio analysis is unreliable because a single ratio can never indicate anything meaningful about a business
D. The current ratio is always the superior measure, so the firm's liquidity is definitively improving
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