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WorksheetsTHEME 2 REVISION QUIZ
Total questions: 91
Worksheet time: 46mins
A key disadvantage of issuing new shares is that it
increases interest payments
reduces retained profit
dilutes ownership
increases liquidity
Which business is most likely to use venture capital?
Family-run corner shop
Public sector organisation
High-growth tech start-up
Local authority
Which form of finance is short term?
Debentures
Mortgage
Overdraft
Share capital
A misconception about retained profit is that it
belongs to shareholders
is free finance
reduces dividends
requires repayment
Which source of finance requires collateral?
Trade credit
Bank loan
Share capital
Crowdfunding
Which statement about crowd funding is correct?
Always provides voting rights
Is only used by PLCs
Can provide market validation
Requires collateral
Which source of finance would increase fixed costs?
Retained profit
Share capital
Bank loan
Sale of assets
Which is a disadvantage of using family and friends finance?
High interest rates
Loss of control
Potential relationship strain
Legal requirements
The main purpose of a cash flow forecast is to
calculate profit
identify liquidity problems
assess efficiency
measure productivity
Which item would appear in a cash flow forecast but not in a profit forecast?
Wages
Rent
Loan repayment
Sales revenue
A firm can be profitable but fail because it
has high fixed costs
lacks retained profit
has poor cash flow
has low gearing
Which would improve cash flow immediately?
Increasing selling price on credit
Offering longer credit terms
Sale of assets
Increasing depreciation
Which is an inflow in month 2 if sales were made on one-month credit in month 1?
Cash sales
Trade payables
Trade receivables
Revenue
A negative closing balance suggests
insolvency
illiquidity
inefficiency
bankruptcy
Which change improves cash flow but may harm competitiveness?
Early payment discounts
Delaying payments to suppliers
Reducing prices
Increasing stock levels
Which item causes a misconception in cash flow forecasts?
Depreciation
Loan inflows
Sales revenue
Capital expenditure
Which is the most appropriate use of a cash flow forecast?
Assessing profitability
Planning short-term finance
Calculating break-even
Measuring efficiency
Why is depreciation excluded from cash flow?
It is a fixed cost
It is subjective
It is non-cash
It reduces profit
A rise in gross profit margin could be caused by
higher overheads
increased variable costs
improved purchasing efficiency
higher fixed costs
Which ratio best measures liquidity?
Gross margin
Net margin
Current ratio
ROCE
A current ratio of 0.8 suggests the business may
be over-trading
lack liquidity
be inefficient
be too profitable
Which ratio considers long-term profitability?
Acid test
ROCE
Current ratio
Gearing
Which ratio is most useful to a short-term creditor?
ROCE
Net profit margin
Acid test
Gearing
A fall in net profit margin could be explained by
increased revenue
reduced variable costs
increased overheads
improved productivity
Which action improves liquidity but may reduce profitability?
Selling assets
Cutting prices
Increasing debt
Reducing overheads
If current assets are £60k and current liabilities are £40k, the current ratio is
0.67
1.0
1.5
2.0
If net profit is £20k and revenue is £200k, net profit margin is
5%
10%
20%
25%
Acid test ratio excludes
trade receivables
inventory
cash
current liabilities
Capacity utilisation measures
output relative to capacity
sales relative to capacity
capacity relative to output
profit relative to sales
Under-utilisation may lead to
higher unit costs
excess overtime
supply shortages
customer dissatisfaction
Over-utilisation may result in
spare capacity
lower unit costs
quality issues
falling demand
Which improves capacity utilisation without increasing demand?
Automation
Reducing prices
Outsourcing
Flexible working
Why might firms maintain spare capacity?
To reduce fixed costs
To respond to demand surges
To improve productivity
To reduce risk
Which is a quantitative factor of location?
Availability of labour
Cost of land
Government attitude
Local image
A key misconception about productivity is that it
equals output
considers inputs
measures efficiency
applies to labour only
Which would increase labour productivity?
Longer shifts
Training
Higher wages
More supervision
Which is most likely to increase unit costs?
Economies of scale
Under-utilisation
Automation
Outsourcing
Which factor is most important for a call centre location?
Raw materials
Skilled labour availability
Tourist footfall
Natural resources
If maximum output is 10,000 units and actual output is 7,500, capacity utilisation is
25%
75%
133%
7.5%
Productivity =
Output ÷ Input
Input ÷ Output
Revenue ÷ Costs
Profit ÷ Labour
If output is 1,200 units and labour hours are 300, productivity is
0.25
2
4
400
A rise in capacity utilisation from 60% to 80% is most likely to
increase unit costs
reduce fixed costs
reduce unit costs
increase variable costs
Which cost is most affected by capacity utilisation?
Fixed costs
Variable costs per unit
Total revenue
Marketing costs
Inflation is most likely to increase
purchasing power
real wages
costs of production
consumer confidence
Rising interest rates tend to
increase investment
reduce borrowing
increase consumer spending
reduce savings
Which business is most affected by exchange rate changes?
Local café
Exporter
Public service
Charity
A depreciation of sterling makes UK exports
less competitive
more expensive
cheaper abroad
unaffected
Which tax is indirect?
Corporation tax
Income tax
VAT
Capital gains tax
A cut in corporation tax is most likely to
reduce investment
increase retained profit
reduce cash flow
increase costs
Economic uncertainty is most likely to lead to
increased risk-taking
delayed investment
higher inflation
lower interest rates
Which stakeholder is most affected by minimum wage increases?
Shareholders
Suppliers
Employees
Customers
Which legislation protects consumers?
Equality Act
Consumer Rights Act
Health and Safety at Work Act
Employment Rights Act
A firm with high sales but low profit margin is likely to have
high fixed costs
strong liquidity
pricing power
high efficiency
Increasing prices will always
increase profit
reduce demand
improve cash flow
depend on elasticity
Which ratio is least useful for comparing firms in different industries?
ROCE
Net margin
Current ratio
Capacity utilisation
Which decision improves short-term cash flow but harms long-term growth?
Reducing R&D
Increasing retained profit
Buying new machinery
Training staff
Which stakeholder conflict is most likely from cost-cutting?
Shareholders vs managers
Customers vs suppliers
Employees vs owners
Government vs firms
A business experiencing over-trading will have
high liquidity
low sales
cash shortages
excess capacity
Which is a limitation of ratio analysis?
Ratios show trends
Ratios ignore qualitative factors
Ratios allow comparison
Ratios use financial data
Why is break-even analysis limited?
Costs are fixed
Assumes linear costs and revenue
Ignores profit
Cannot be calculated
Which improves competitiveness during inflation?
Cost control
Increasing prices
Reducing output
Increasing debt
Which decision best reduces financial risk?
Increasing gearing
Diversifying revenue
Short-term borrowing
Increasing dividends
If fixed costs are £50k, contribution per unit £10, break-even output is
500 units
5,000 units
50,000 units
10 units
A fall in interest rates is most likely to benefit
Savers
Borrowers
Government
Importers
Which ratio improves when stock levels fall?
ROCE
Gross margin
Acid test
Net margin
A business facing strong competition is least likely to
reduce prices
innovate
increase market share easily
improve efficiency
Which external influence is hardest to control?
Inflation
Workforce productivity
Marketing strategy
Capacity
Which cost is semi-variable?
Rent
Raw materials
Electricity
Salaries
If variable costs rise faster than revenue, gross margin will
rise
fall
remain unchanged
turn negative
Which decision improves economies of scale?
Downsizing
Merging
Outsourcing
Reducing output
Which policy directly affects consumer spending?
Corporation tax
Interest rates
Business subsidies
Exchange controls
Which is a sign of improved efficiency?
Rising costs
Falling productivity
Higher output per input
Higher gearing
Which improves contribution but not revenue?
Cost reduction
Price cuts
Increased output
Advertising
Which decision increases operational risk?
Flexible labour
High capacity utilisation
Spare capacity
Diversification
A rise in VAT is most likely to
reduce costs
increase prices
increase disposable income
reduce inflation
Which factor most influences international location decisions?
Exchange rates
Labour skills
Cultural factors
Infrastructure
Which stakeholder benefits most from higher dividends?
Employees
Customers
Shareholders
Suppliers
Which ratio ignores liquidity completely?
Current ratio
Acid test
ROCE
Gearing
A business facing falling demand should first consider
expansion
price elasticity
automation
increasing capacity
Which is an internal constraint?
Inflation
Capacity
Exchange rates
Legislation
Which decision best supports long-term growth?
Cutting training
Reducing R&D
Investing in productivity
Increasing dividends
Which improves cash flow but worsens supplier relations?
Early payment discounts
Delayed payments
Sale of assets
Invoice factoring
Which is most likely to worsen during a recession?
Inflation
Sales revenue
Unemployment
Exchange rates
Which improves net profit margin but may reduce demand?
Price increase
Cost increase
Advertising
Wage rises
A firm with high fixed costs is most vulnerable to
cost increases
demand fluctuations
labour turnover
exchange rate changes
Which decision increases both risk and potential return?
Diversification
Debt finance
Retained profit
Cost cutting
Which stakeholder pressure is strongest during inflation?
Government regulation
Employee wage demands
Shareholder dividends
Supplier discounts
Which ratio best measures efficiency of capital use?
Current ratio
ROCE
Gross margin
Acid test
Which is most likely to improve competitiveness in global markets?
Higher prices
Cost leadership
Reduced quality
Increased debt
Which decision reduces liquidity first?
Buying assets
Cutting prices
Reducing stock
Delaying payments
Which external influence affects all businesses simultaneously?
Competition
Exchange rates
Economic cycle
Stakeholders
