Analysis of published accounts

Ratios can indicate how good a business is at generating profits by:

• Showing the relationship between revenue and expenses

• Indicating the number of employees

• Measuring the office size

• Counting the number of products sold

Ratios help in understanding how effective a business is at managing its working capital by:

• providing insights into liquidity and operational efficiency

• increasing the amount of working capital

• decreasing the liabilities of the business

• eliminating the need for financial analysis

Ratios can show how sound a business is as a potential investment to shareholders and lenders by:

• indicating profitability and financial stability

• providing detailed market analysis

• ensuring guaranteed returns

• eliminating all investment risks

Ratios can indicate the riskiness of a business with regards to its financial structure by:

• Showing the proportion of debt to equity

• Indicating the liquidity position

• Reflecting the profitability margins

• All of the above

What is the formula for the Current Ratio?

• Current Assets / Current Liabilities

• Current Liabilities / Current Assets

• Total Assets / Total Liabilities

• Total Liabilities / Total Assets

What is the formula for the Acid Test Ratio?

• (Current Assets - Inventory) / Current Liabilities

• Current Assets / Current Liabilities

• (Current Assets + Inventory) / Current Liabilities

• Current Liabilities / (Current Assets - Inventory)

Which of the following is NOT a factor for better management according to the Current Ratio?

• Stock levels

• Cash

• Accounts receivable

• Marketing strategies

What is the ideal level of the Current Ratio according to some businesses?

• 0.5 to 1

• 1.5 to 2

• 2.5 to 3

• 3.5 to 4

What is the formula for calculating the Return on Capital Employed (ROCE)?

• The formula for calculating the Return on Capital Employed (ROCE) is: ROCE = Earnings Before Interest and Tax (EBIT) / Capital Employed.

• ROCE = Net Income / Total Assets.

• ROCE = Gross Profit / Net Sales.

• ROCE = Operating Income / Shareholder's Equity.

The Gross Profit Margin ratio is interpreted as:

• a measure of a company's profitability after accounting for the cost of goods sold

• a measure of a company's overall profitability

• a measure of a company's liquidity

• a measure of a company's operational efficiency