Chapter 22 Profitability and liquidity ratios

State the following statement True or False.

Ratios help in comparisons of a firm’s results over a number of accounting periods as well as with other business enterprises.

• True

• False

State the following statement True or False.

A ratio reflects quantitative and qualitative aspects of results.

• True

• False

The _________ of business firm is measured by its ability to satisfy its short term obligations as they become due.

• Activity

• Liquidity

• profitability

• Solvency

The two basic measures of liquidity are:

• inventory turnover and current ratio

• current ratio and liquid ratio

• gross margin and profit margin

• current ratio and trade receivables turnover

The _________ is a measure of liquidity which excludes _______, generally the least liquid asset.

• Current ratio, trade receivable

• Liquid ratio, trade receivable

• Current ratio, inventory

• Liquid ratio, inventory

What ratio shows how well a business can turn revenue into gross profit?

• Net profit margin

• Gross profit margin

• Current ratio

• Acid test ratio

Which of the following statements are correct? (you should select two only!)

• Nairobi Press Ltd's gross profit margin = 40%

• Nairobi Press Ltd's net profit margin= 25%

• Nairobi Press Ltd's gross profit margin = 50%

• Nairobi Press Ltd's net profit margin = 20%

Which of the following statements are correct? (select two only!)

• Port Louis Press Ltd's net profit margin = 15%

• Port Louis Press Ltd's gross profit margin = 25%

• Port Louis Press Ltd's net profit margin = 15.63%

• Port Louis Press Ltd's gross profit margin= 30%

This is the formula for which ratio?

• Gross profit margin

• Net profit margin

• Return on capital employed

• Inventory turnover

Calculate Sally's Ice cream Parlours ROCE.

• 10

• 12.5%

• 10%

• 12.5