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WorksheetsProfitability Analysis
Total questions: 65
Worksheet time: 53mins
Product profitability analysis is
a creative way of looking at causes of problems because it helps stimulate thinking and organize thoughts
the amount of profit that a particular product or service makes in a partiular period
a class of financial metrics that are used to assess a business's ability to generate earnings relative to its revenue, operating costs, balance sheet assets
gross profit, which is sales minus the cost of goods sold
What is the Return on Capital Employed formula ?
(Net income - Dividends) / (Debt + Equity)
Net income / Equity capital
Earnings before interest and tax / (Total assets − Current liabilities)
Earnings before interest and tax / Total assets
You are a house flipper. You purchased a house for $80,000 and spent $30,000 in renovations.
You sale renovated house for $150,000.
What is Return on investment (ROI) ?
$ 40, 000
27 %
20 %
54 %
Net sales = $ 100,000. Earnings before income and taxes (EBIT) = $ 20,000. Net profit = $ 10,000.
What is Return on sales ratio ?
$ 80,000
$ 70,000
20 %
10%
30 %
1) ________ is the process of determining whether a business idea is viable.
A) Feasibility analysis
B) Opportunity recognition
C) Viability analysis
D) Achievability analysis
E) Scenario analysis
6) The two components of product/service feasibility analysis are product/service ________ and product/service ________.
A) value; affordability
B) demand; timeliness
C) timeliness; value
D) durability; value
E) desirability; demand
10) ________ feasibility analysis is a quick financial assessment of the viability of a business idea.
A) Organizational
B) Institutional
C) Product/service
D) Financial
E) Industry/market
1) ________ is the process of determining whether a business idea is viable.
A) Feasibility analysis
B) Opportunity recognition
C) Viability analysis
D) Achievability analysis
E) Scenario analysis
Which are from these are the three level of customer driven cost
i. Multilevel activities
ii. Market level activities
iii. Production level activities
iv. Order level activities
i & ii
ii& iii
ii & iv
i & iv
which are one of the reason to calculate customer profitability
to find out the most customer from b40
to find out which customer that are rich and poor
to find out which customer generate the most profit and how to retain them
to find out which customer come from
Which of the activities are includes under differences in resources used?
i. Marketing and selling
ii. Customisation of product
iii. Operating activities
iv. Distribution channel
i,ii,iv
ii,iii,iv
i,ii,iii
None of the above
what is Customer Relationship Management ?
technology for managing all your company’s relationships and interactions with customers and potential customers.
the coordination and administration of tasks to achieve a goal.
the process of identifying, assessing and controlling threats to an organization's capital and earnings.
Customer lifetime value are very useful for these types of companies except:
Companies with large variations in purchasing patterns by customers
Companies with no objectives
Companies with high customer acquisition costs
Companies with high customer retention costs
Identify the correct meaning of a net profit ratio of 15%: "This means for every $1...
...of profit, revenue generated is $0.15"
...of revenue, profit generated is $15"
...of equity, the return for the owner is $0.15"
...of revenue, profit generated is $0.15"
The two basic measures of liquidity are:
inventory turnover and current ratio
current ratio and liquid ratio
gross margin and profit margin
current ratio and trade receivables turnover
The _________ of business firm is measured by its ability to satisfy its short term obligations as they become due.
Activity
Liquidity
profitability
Solvency
What are the factors affecting Gross profit margin calculation?
Changes in selling prices
Changes in cost prices
Changes in both cost and selling prices
All the above
The expenses to sales ratios for a business improved over the years. Which one of the below action most probably done to achieve the above results?
Reduction in expenses
GST
Repayment of loans
None of the above
The following is NOT a benchmark
Budgeted Performance
Industry Average
Sales Returns
Past Performance
The following is NOT a non financial indicator
Customer satisfaction surveys
Website hits
The number of Sales Returns
Sales Returns
A higher debt ratio means...
Increased loan repayments and interest
Likely increase in Return on Owner's Investment
Access to funds the business would not have had otherwise to purchase productive, revenue-earning assets
All of the above
Profitability is the ability to
Generate a result
Generate operations
Generate a net profit
Generate a loss
Profit allows
Growth
Low turnover
Happiness
Livelihood
Loss leads to
Slow dont the activity
High turnover
Bankruptcy
Reduce the operations
Economy of scope is about...
Producing more different products but similar
Reducing the cost of production
Producing more identical products
Increasing the cost of production
The following is NOT a method that can be used to evaluate capital projects with unequal lives
Replacement chains
Equivalent annual cost
Profitability index
Equivalent annual annuity
Project Alpha has an NPV of R25 000 and runs over a period of 4 years. The initial cost is R10 000. Calculate the profitability index
3.5
8231
3292
2.5
When using the NPV method: Nominal cash flows should be discounted using which rate:
Real WACC
Nominal WACC
Market interest rate on loans
Cost of Debt
True or false?
Which of the following is NOT relevant to the use of the NPV method of investment appraisal?
It relies on discounted cash flows
It’s expressed as a percentage for easier comparison
Its value will fall if interest rates rise
A financially viable investment has a positive value
Popps Ltd is considering the purchase of an asset for £120,000. This asset will generate the following cash flows:
£
Year 1 15,000
Year 2 25,000
Year 3 40,000
Year 4 40,000
Year 5 35,000
Year 6 30,000
Using a discount rate of 20% the discounted payback period would be:
4 years
6 years
The investment does not pay back
5 years
The discount factor used to appraise capital investment decisions is a measure of:
The current high street interest rate
The opportunity cost of capital of the business
The current inflation rate
The opportunity cost of capital of all businesses in the same industry
Investment can be defined.
Use of capital on assets to receive returns
Person’s dedication to purchasing a house or flat
Usage of money on a production process of products and services
Net additions made to the nation’s capital stocks
Which of the following is the activity which finance people are involved?
marketing decision
promotional decision
Investing decision
None of these
Although it ignores the time value of money, what is the most common method used in practice for capital budgeting?
internal rate of return
net present value
payback
accounting rate of return
Which of the following is always true with regard to the net present value (NPV) approach?
The NPV and the IRR approaches will always rank projects in the same order
The NPV and Payback approaches will always rank projects in the same approaches
If a project is found to be acceptable under the NPV approach, it would also be acceptable under the internal rate of return (IRR) approach
If a project is found to be acceptable under the NPV approach, it would also be acceptable under the payback approach
This is a form of analysis defined by calculating how long it will take for the asset to "earn back" the money you invested in purchasing it.
internal rate of return
net present value
payback method analysis
tax accounting
This answers the question, "How much is my asset worth right now?"
net present value
internal rate of return
discount rate
capital budgeting
Although it ignores the time value of money, what is the most common method used in practice for capital budgeting?
internal rate of return
net present value
payback
accounting rate of return
A set of projects in which the acceptance of one project means that the others cannot be accepted
Replacement Decision
Expansion Decision
Independent Projects
Mutually Exclusive Projects
The present value of an asset's future cash flows minus its purchase price initial investment is
Internal Rate of Return
Payback
Net Present Value
Modified Internal Rate of Return
Which of the following statements regarding NPV is true?
If NPV is positive, the project is expected to earn more than the firm's cost of capital.
Accepting negative NPV projects will reduce shareholders' wealth.
If the NPV is positive, the project's cost is less than the project's expected benefit.
All of the above.
The following are the advantages of net present value, EXCEPT
it can be used as a rough screening device to eliminate those projects whose returns do not materialize until later years.
all positive NPVs will increase the value of the firm
it allows comparison of benefits and costs in a logical manner
it recognizes the timing of benefits resulting from the project
Which of the following statement about NPV is FALSE?
It does not allow for projects to be ranked.
It has an inadequate reinvestment assumption.
It is likely that there will be more than one NPV for a project.
All of the above
We compute the profitability index of a capital budgeting proposal by
multiplying the internal rate of return by the cost of capital.
dividing the present value of the annual after-tax cash flows by the cost of capital.
dividing the present value of the annual after-tax cash flows by the cash investment in the project.
multiplying the cash inflow by the internal rate of return.
The disadvantage of the IRR method is that
the IRR deals with cash flows.
the IRR gives equal regard to all returns within a project's life.
the IRR will always give the same project accept/reject decision as the NPV.
the IRR requires long, detailed cash flow forecasts.
Answer: D
Under what condition would you NOT accept a project that has a positive net present value?
If the project has a profitability index less than zero.
If two or more projects are mutually inclusive.
If the firm is limited in the capital it has available (capital rationing).
If a project has more than one sign reversal.
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