Business Ratio Analysis Quiz

What is the purpose of ratio analysis in business?

• To calculate the total revenue of a business

• To gain insight into relationships between financial values

• To determine the number of employees in a business

• To analyze the marketing strategies of a business

Which financial values are usually compared in ratio analysis?

• Customer satisfaction and loyalty

• Employee salaries and bonuses

• Sales revenue and marketing expenses

• Assets and liabilities

What is the formula for calculating the gross profit margin?

• Net profit divided by total assets

• Operating profit divided by capital employed

• Gross profit divided by sales revenue

• Gross profit divided by cost of sales

How does a strengthening euro compared to the pound affect the profit margins of a business importing raw materials from Europe?

• Increases both gross profit margin and operating profit margin

• Decreases both gross profit margin and operating profit margin

• Decreases gross profit margin but increases operating profit margin

• Increases gross profit margin but decreases operating profit margin

Which combination of changes is most likely to result in an increase in return on capital employed for a capital-intensive business?

• 5% increase in operating profits and 40% increase in capital employed

• 20% decrease in operating profits and 5% increase in capital employed

• 10% increase in operating profits and 10% decrease in capital employed

• 20% decrease in operating profits and no change in capital employed

What do liquidity ratios measure in a business?

• The return on investment for shareholders

• The profitability of the business operations

• The ability to pay short-term debts with available cash

• The efficiency of using assets and capital

Which of the following is included in the current assets of a business?

• Property and equipment

• Cash in the bank

• Trade payables

• Long-term investments

What does the acid test ratio measure in a business?

• The efficiency of inventory management

• The ability to pay short-term debts with liquid assets

• The profitability of the business operations

• The ability to pay all debts including long-term liabilities

Which financial ratio helps in evaluating how efficiently a business is using its assets and capital?

• Gearing

• Inventory turnover

• Return on capital employed

• Payables and receivables days

What is the main purpose of financial efficiency ratios in business?

• To analyze the marketing strategies of a business

• To compare the profit performance of different businesses

• To evaluate the solvency and liquidity of a business

• To measure the efficiency of using assets and capital