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Ratio Questions-8

Ratio intro to accounting

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26 views

Ratio Questions-8

Ratio intro to accounting

Uploaded by

Yegii
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Sample Ratio Multiple Choice Questions

1. These questions are from the textbook test bank. We do not use the textbook test bank
since it has been hacked and is available for sale on the internet. To ensure the integrity
and fairness of our exam, we have written an entirely original set of questions. Please
do not ask us to post the test bank. It is copyright McGraw Hill and we are asked not to
post the test bank.
2. The actual questions will be similar except that quite often you will be given the industry
average for the ratio as well and asked to interpret the company’s performance against the
industry average.
3. The formulas provided at the back are the same ones we will provide to you in the exam.

The following information was taken from the financial statements of C Co for the years 20X2
and 20X1:

Statement of 20X2 20X1


Earnings
Net operating $19,805 $18,813
revenues
Cost of goods sold 6,009 5,562
Gross profit 13,796 13,251
Selling, 9,001 8,211
administrative and
general expenses
Other operating 813 73
charges
Operating profit 3,982 4,967
Other revenues (163) 231
(expenses)
including interest
expense $337
million in 20X2
and $277 million
in 20X1
Profit before taxes 3,819 5,198
Income tax 1,388 1,665
expense (tax rate
36.3% in 20X2)
Profit 2,431 3,533
Statement of 20X2 20X1
Financial Position
Cash and cash $1,611 $1,648
equivalents
Marketable 201 159
securities
Trade receivables, 1,798 1,666
net
Inventories 1,076 890
Prepaid expenses 1,794 2,017
and other assets
Total current 6,480 6,380
assets
Total investment 8,916 8,549
assets
Property, plant and 4,267 3,669
equipment, net
Goodwill and 1,960 547
other intangible
assets
Total assets $21,623 $19,145

Current liabilities 9,856 8,640


Long-term debt 854 687
Other liabilities 1,400 1,415
and deferred taxes
Total liabilities 12,110 10,742
Total shareholders' 9,513 8,403
equity
Total liabilities $21,623 $19,145
and shareholders'
equity
84. Calculate C Co's gross profit ratio for 20X2 and 20X1 respectively.
A. 30.3% and 29.6%
B. 69.7% and 70.4%
C. 20.1% and 26.4%
D. 40.6% and 45.7%

85. Calculate C Co's profit margin ratio for 20X2 and 20X1 respectively.
A. 69.7% and 70.4%
B. 19.3% and 27.6%
C. 20.1% and 26.4%
D. 12.3% and 18.8%

86. Calculate C Co's fixed asset turnover ratio for 20X2.


A. .97
B. 3.79
C. 4.87
D. 4.99

87. Calculate C Co's return on assets (ROA) for 20X2.


A. 11.9%
B. 13.0%
C. 13.6%
D. 17.7%

88. Calculate C Co's return on equity (ROE) for 20X2.


A. 25.6%
B. 27.1%
C. 30.9%
D. 31.8%

89. Calculate C Co's financial leverage and identify whether it was positive or negative.
A. 14.1% positive
B. 15.2% positive
C. 17.8% negative
D. 19.9% negative

90. Calculate C Co's current ratio for 20X2 and 20X1 respectively.
A. .54 and .59
B. .60 and .70
C. .66 and .74
D. .63 and .72
91. Calculate C Co's quick ratio for 20X2 and 20X1 respectively.
A. .30 and .32
B. .37 and .40
C. .55 and .64
D. .56 and .54

92. Calculate C Co's receivables turnover ratio and the days' sales in receivables for 20X2.
A. 11.43 times and 31.9 days
B. 11.02 times and 33.1 days
C. 11.15 times and 32.7 days
D. 3.47 times and 105.2 days

93. Calculate C Co's inventory turnover ratio and the days' sales in inventory for 20X2.
A. 5.89 times and 62.0 days
B. 18.41 times and 19.8 days
C. 5.58 times and 65.4 days
D. 6.11 times and 59.7 days

94. Calculate C Co's debt to equity ratio for 20X2 and 20X1 respectively.
A. 1.27 and 1.28
B. .79 and .78
C. .56 and .56
D. .66 and .66
95. Calculate C Co's times interest earned ratio for 20X2 and 20X1 respectively.
A. 11.82 and 17.93
B. 7.21 and 12.75
C. 12.33 and 19.77
D. 11.33 and 18.77

96. If a company has a current ratio of 1.3:1, what respective effects will the borrowing of cash
by short-term debt and collection of trade receivables have on the ratio?
A. Please see the following information:

Short-term Collection
Borrowing of
Receivables
Increase No Effect

B. Please see the following information:

Short-term Collection of
Borrowing Receivables
Increase Increase

C. Please see the following information:

Short-term Collection
Borrowing of
Receivables
Decrease No Effect

D. Please see the following information:

Short-term Collection of
Borrowing Receivables
Decrease Decrease
97. If trade receivables are collected quickly, it may indicate which of the following problems?
A. The trade receivables turnover is low.
B. The company's credit policies may be overly stringent.
C. Credit is often granted to poor credit risks.
D. The company is becoming more profitable.

98. A liquidity ratio measures the


A. earnings or operating success of a company over a specific time period.
B. ability of the company to survive in the long-term future.
C. short-term ability of the company to pay its maturing obligations and to meet unexpected
needs for cash.
D. risk of bankruptcy.

99. An aircraft company would most likely have


A. a high inventory turnover.
B. a low profit margin.
C. no inventory because orders take place before manufacturing.
D. a low inventory turnover.

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