1. Multiple Choice Questions: – Ratio Analysis

1. Accounting Ratios are important tools used by

(a) Managers, (b) Researchers,(c)Investors, (d) All of the above

2.   Net   Profit   Ratio   Signifies:

(a)   Operational   Profitability,   (b) Liquidity Position,(c) Big-term Solvency,(d)Profit for Lenders.

3.   Working   Capital   Turnover   measures   the   relationship   of

Working Capital with:

(a)Fixed Assets,(b)Sales,(c)Purchases,(d)Stock.

4. In Ratio Analysis, the term Capital Employed refers to:

(a)Equity Share Capital,(b)Net worth,(c)Shareholders’ Funds,

(d)None of the above.

5. Dividend Payout Ratio is:

(a)PAT Capital, (b)DPS ÷ EPS,(c) Pref. Dividend ÷ PAT, (d) Pref.

Dividend ÷ Equity Dividend.

6. DU PONT Analysis deals with:

(a) Analysis of Current Assets, (b)Analysis of Profit, (c)Capital Budgeting, (d) Analysis of Fixed Assets.

7.   In   Net  Profit  Ratio,  the  denominator  is:

(a)Net  Purchases,(b)Net Sales, (c) Credit Sales, (d) Cost of goods sold.

8. Inventory Turnover measures the relationship of inventory

with:

(a) Average Sales, (b)Cost of Goods Sold, (c)Total Purchases, (d) Total Assets.

9. The term ‘EVA’ is used for:

(a)Extra Value Analysis, (b)Economic Value Added,(c)Expected Value Analysis,(d)Engineering Value Analysis.

10. Return on Investment may be improved by:

(a)Increasing   Turnover,(b)   Reducing   Expenses,(c)Increasing Capital Utilization,(d)All of the above.

11. In Current Ratio, Current Assets are compared with:

(a)Current   Profit,   (b)Current   Liabilities,(c)Fixed   Assets, (d)Equity Share Capital.

12. ABC Ltd. has a Current Ratio of 1.5: 1 and Net Current Assets of Rs. 5,00,000. What are the Current Assets?

(a)Rs.   5,00,000,   (b)Rs.   10,00,000,   (c)Rs.15,00,000,  (d) Rs. 25,00,000

13.There is   deterioration   in   the   management   of   working capital of XYZ Ltd. What does it refer to?

(a)That   the   Capital   Employed   has   reduced,(b)That   the

Profitability has gone up,(c)That debtors collection period has

increased,(d)That Sales has decreased.

14. Which of the following does not help to increase Current Ratio?

(a)Issue of Debentures to buy Stock, (b)Issue of Debentures to pay Creditors,(c)Sale of Investment to pay Creditors,(d)Avail Bank Overdraft to buy Machine.

75. Debt to Total Assets Ratio can be improved by:

(a)Borrowing More,(b)Issue of Debentures,(c)Issue of Equity Shares,(d)Redemption of Debt.

16. Ratio of Net Income to Number of Equity Shares known as:

(a)Price   Earnings   Ratio,   (b)   Net   Profit   Ratio,(c)Earnings per Share,

(d) Dividend per Share.

17. Trend Analysis helps comparing performance of a firm

(a)With   other   firms,(b)Over   a   period   of   firm,(c)With other industries,

(d) None of the above.

18. A Current Ratio of Less than One means:

(a)Current   Liabilities < Current Assets,(b)Fixed Assets > Current Assets,(c)Current Assets < Current Liabilities,(d) Share Capital > Current Assets.

19. A firm has Capital of Rs. 10,00,000; Sales of Rs. 5,00,000; Gross Profit of

Rs. 2,00,000  and  Expenses  of   Rs.  1,00,000. What is the Net Profit Ratio?

(a)20%, (b) 50%, (c)10%, (d)40%.

20. XYZ Ltd. has earned 8% Return on Total Assests of Rs. 50,00,000 and has a Net Profit Ratio of 5%. Find out the Sales of the firm.

 (a) Rs. 4,00,000, (b)Rs. 2,50,000,(c)Rs. 80,00,000,(d)Rs. 83,33,333.

21.   Suppliers   and   Creditors   of   a   firm   are   interested in

(a)Profitability  Position,(b)Liquidity  Position,(c)Market  Share Position, (d) Debt Position.

22.Which of the following is a measure of Debt service capacity of a firm?

(a)Current Ratio, (b)Acid Test Ratio,(c) Interest Coverage Ratio,(d) Debtors Turnover.

23. Gross Profit Ratio for a firm remains same but the Net Profit Ratio is decreasing. The reason for such behavior could be:

(a) Increase in Costs of Goods Sold, (b)If Increase in Expense,

(c) Increase in Dividend,(d)Decrease in Sales.

24. Which of the following statements is correct?

(a) A Higher Receivable Turnover is not desirable, (b) Interest Coverage Ratio depends upon Tax Rate,(c)Increase in Net Profit Ratio means increase in Sales,

 (d) Lower Debt-Equity Ratio means lower Financial Risk.

25. Debt to Total Assets of a firm is .2. The Debt to Equity boo would be:

(a) 0.80, (b)0.25, (c) 1.00, (d)0.75

26. Which of the following helps analysing return to equity Shareholders?

(a) Return on Assets, (b) Earnings Per Share, (c) Net Profit Ratio, (d)Return on Investment.

27. Return on Assets and Return on Investment Ratios belong to:

(a) Liquidity Ratios,(b)Profitability Ratios,(c)Solvency Ratios,(d)Turnover.

28. XYZ Ltd. has a Debt Equity Ratio of 1.5 as compared to 1.3 Industry average. It means that the firm has:

(a) Higher Liquidity, (b)Higher Financial Risk,(c)Higher Profitability,(d)Higher Capital Employed.

29. Ratio Analysis can be used to study liquidity, turnover, profitability, etc. of a firm. What does Debt-Equity Ratio help to study?

(a)Solvency,(b)Liquidity,(c)Profitability,(d) Turnover,

30. In Inventory Turnover calculation, what is taken in the numerator?

(a) Sales,(b)Cost of Goods Sold,(c)Opening Stock,(d) Closing Stock.

[Answers : 1. (d); 2. (a) 3. (a); 4. (d); 5. (b); 6. (b); 7.

(b); 8. (b); 9. (b); 10. (d); 11. (b); 12. (c); 13. (c); 14.

(d); 15. (d); 16. (c); 17. (b); 18. (c);19. (a); 20. (c);21.

(b);22. (c);23. (b);24. (d);25. (b);26. (b); 27. (b); 28. (b); 29. (a); 30. (b)].

MCQs on Ratio Analysis

1. In the Balance sheet of a firm,the debt equity ratio is 2:1.The amount of long term

      sources is Rs.12 lac.What is the amount of tangible net worth of the firm?

        a) Rs.12 lac.     b) Rs.8 lac      c) Rs.4 lac.    d) Rs.2 lac.

• Debt Equity Ratio is 3:1,the amount of total assets Rs.20 lac,current ratio is 1.5:1

      and owned funds Rs.3 lac.What is the amount of current asset?

        a) Rs.5 lac      b) Rs.3 lac       c) Rs.12 lac     d)none of the above.

• Banks generally prefer Debt Equity Ratio at :

a) 1:1               b) 1:3               c)2:1                 d) 3:1

• If a company revalues its assets,its networth :

a)   Will improve  b) Will remain same c) Will be positively affected d) None of

       the above.

• If a company issues bonus shares the debt equity ratio will

a)   Remain unaffected b) Will be affected c) Will improve d) none of the above.  

• An asset is a

a)    Source of fund  b) Use of fund   c) Inflow of funds     d) none of the above.

• In the balance sheet amount of total assets is Rs.10 lac, current liabilities Rs.5 lac  

      & capital & reserves are Rs.2 lac .What is the debt equity ratio?

      a)1;1         b) 1.5:1      c)2:1      d)none of the above.

• The long term use is 120% of long term source.This indicates the unit has

a) current ratio 1.2:1 b) Negative TNW c)Low capitalization d)Negative NWC.

9) In last year the current ratio was 3:1 and quick ratio was 2:1.Presently current ratio is 3:1 but quick ratio is 1:1.This indicates comparably

 a) high liquidity    b) higher stock     c) lower stock    d) low liquidity

1. Authorised capital of a company is Rs.5 lac,40% of it is paid up.Loss incurred

during the year is Rs.50,000.Accumulated loss carried from last year is Rs.2 lac.The company has a Tangible Net Worth of

 a) Nil          b) Rs.2.50 lac      c) (-)Rs.50,000    d) Rs.1 lac.

1. The degree of solvency of two firms can be compared by measuring

 a) Net worth   b) Tangible Net Worth c) Asset coverage ratio d) Solvency Ratio. 

1. Properietory ratio is calculated by

a) Total assets/Total outside liability b) Total outside liability/Total tangible assets

c) Fixed assets/Long term source of fund   d) Properietors’Funds/Total Tangible Assets.

1. Current ratio of a concern is 1,its net working capital will be

a) Positive     b) Negative      c) Nil        d) None of the above

1. Current ratio is 4:1.Net Working Capital is Rs.30,000.Find the amount of current

Assets.

 a) Rs.10,000  b) Rs.40,000    c) Rs.24,000      d) Rs.6,000

1. Current ratio is 2:5.Current liability is Rs.30000.The Net working capital is

a) Rs.18,000     b) Rs.45,000      c) Rs.(-) 45,000   d) Rs.(-)18000

1. Quick assets do not include

a) Govt.bond     b) Book debts   c) Advance for supply of raw materials d) Inventories.

1. The ideal quick ratio is

a) 2:1       b) 1:1          c) 5:1      d) None of the above

1. A very high current ratio indicates

a) High efficiency    b) flabby inventory c) position of more long term funds

d) b or c

1. Financial leverage means

a) Use of more debt capital to increase profit  b) High degree of solvency

c) Low bank finance     d) None of the above

• The capital gearing ratio is high for a company.It indicates a position of

a) Low debts    b) high preference capital    c) high equity  d) low debt equity

    ratio.