Quiz on Ratio Analysis

What is the primary use of accounting ratios?

• To assess employee performance

• To interpret financial statements

• To determine the market value of a firm

• To calculate tax liabilities

What does the gross profit margin measure?

• The cost of goods sold

• The total sales of a business

• The total expenses of a business

• The efficiency of management in converting sales into profit

What is the formula for calculating the current ratio?

• Current Assets / Current Liabilities

• Current Liabilities / Current Assets

• Total Assets / Total Liabilities

• Net Sales / Cost of Sales

What does the quick ratio ignore in its calculation?

• Current assets

• Closing inventory

• Trade receivables

• Current liabilities

What does a high rate of inventory turnover indicate?

• Poor inventory management

• Good inventory management

• High expenses

• Low sales

What does the net profit margin measure?

• Operating expenses as a percentage of sales

• Total revenue of the business

• Profit for the year as a percentage of sales

• Cost of sales as a percentage of revenue

What is the ideal current ratio?

• 3:1

• 1:1

• 2:1

• 4:1

What does the return on capital employed (ROCE) measure?

• Operating profit as a percentage of capital employed

• Total sales as a percentage of assets

• Net profit as a percentage of liabilities

• Gross profit as a percentage of sales

What does a low current ratio indicate?

• Effective cost management

• Strong liquidity position

• Potential liquidity problems

• High profitability