Accounting Ratios Quiz

What is the main reason for using accounting ratios?

• To measure the financial performance of the business.

• To calculate taxes accurately.

• To track employee attendance.

• To determine the weather forecast.

How is Gross Profit percentage calculated?

• Gross Profit/ Net Sales x 100

• Current Assets - Stock / Current Liabilities

• Net Profit/ Net Sales x 100

• Total Expenses/ Net Sales x 100

What does the Acid Test Ratio measure?

• The return on capital investment into the business.

• The ability of the business to meet its short-term obligations with its most liquid assets.

• The efficiency of the business in managing its resources.

• The profitability of the business over a long period.

What does Return on Capital Invested indicate?

• The percentage of net profit in relation to the capital at the start.

• The percentage of gross profit in relation to net sales.

• The percentage of expenses in relation to net sales.

• The percentage of liquid assets in relation to current liabilities.

How can a business improve its profitability?

• Introducing more capital and reducing non-current liabilities.

• Reviewing pricing policies, considering product quality, and reviewing marketing strategies.

• Increasing drawings and delaying expenditure on fixed assets.

• Reducing sales and increasing costs.

What is the main strength of an increase in the rate of inventory turnover?

• It means the business is holding excess inventory.

• It shows that the business is not managing its resources efficiently.

• It means inventory is sold more quickly, resulting in increased profit on each sale.

• It indicates a decrease in sales and profitability.

What should be considered when reviewing the performance of a business?

• Trend in sales, profitability, liquidity, and efficiency.

• Trend in employee attendance, marketing strategies, and product range.

• Trend in weather forecast, customer satisfaction, and supplier relationships.

• Trend in taxes, expenses, and debtors.

What does a positive Gross Profit percentage indicate?

• More gross profit is being made in relation to sales.

• The business is incurring losses on each sale.

• The business is not managing its expenses effectively.

• The business is facing liquidity issues.

How can a business improve its liquidity?

• Selling off unused fixed assets and increasing non-current liabilities.

• Introducing more capital and reducing non-current liabilities.

• Reducing sales and increasing costs.

• Increasing profit, reducing drawings, and delaying expenditure on fixed assets.

What is the purpose of calculating ratios using key figures from financial statements?

• To track employee attendance and supplier relationships.

• To analyze how well or badly a business has been performing and provide a basis for making improvements.

• To calculate taxes accurately.

• To determine the weather forecast for the business.