Management Accounting Unit II

What is the main purpose of ratio analysis?

• To prepare budgets

• To analyze cash flows

• To evaluate financial performance

• To audit the company

Which of the following is a use of ratio analysis?

• Legal compliance

• Enhancing employee performance

• Decision-making for stakeholders

• Filing tax returns

Ratio analysis is primarily based on:

• Future market projections

• Financial statements

• Managerial opinions

• Internal surveys

One limitation of ratio analysis is that:

• It is always accurate

• It considers inflation

• It depends on historical data

• It replaces financial statements

Which one is not a limitation of ratio analysis?

• Differences in accounting policies

• Ignorance of qualitative factors

• Consideration of current market trends

• Window dressing of accounts

Liquidity ratios measure:

• Long-term debt paying capacity

• Profitability of a business

• Short-term financial stability

• Market performance

Which of the following is a liquidity ratio?

• Debt-equity ratio

• Gross profit ratio

• Current ratio

• Return on capital employed

The formula for current ratio is:

• Current Assets / Current Liabilities

• Total Assets / Total Liabilities

• Fixed Assets / Long-term Liabilities

• Net Income / Sales

A high current ratio indicates:

• Insolvency

• Low working capital

• Strong liquidity position

• High debt

The quick ratio excludes which of the following from current assets?

• Cash

• Inventory

• Marketable securities

• Accounts receivable