Chapter:

50+ Analysis & interpretation of financial statement Solved MCQs

in Management Accounting

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20

1.	Stock is considered as a liquid asset as anytime it can be converted into cash immediately.
A.	yes
B.	no
C.	only yes
D.	none of the above
Answer» B. no

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2.	. Return on properties funds is also known as.
A.	return on net worth
B.	return on shareholders fun
C.	return on the shareholders investment
D.	all the above
Answer» D. all the above

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3.	What will be the Gross Profit if , total sales is Rs 2,60,000,cost of net goods sold is Rs 2,00,000 & sales return is Rs10,000 ?
A.	13 %
B.	28%
C.	26%
D.	20%
Answer» D. 20%

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4.	Which of the following is not included in current assets.
A.	debtors
B.	stock
C.	cash at bank
D.	cash in hand
Answer» B. stock

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5.	Liquidity ratios are expressed in
A.	pure ratio form
B.	percentage
C.	rate or time
D.	none of the above
Answer» A. pure ratio form

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6.	Working capital turnover ratio can be determined by :
A.	( gross profit / working capital )
B.	( cost of goods sold / net sales )
C.	( cost of goods sold / working capital)
D.	none of the above
Answer» A. ( gross profit / working capital )

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7.	Determine Working capital turnover ratio if, Current asset is Rs 1,50,000, current liability is Rs 1,00,000 & cost of goods sold is Rs 3,00,000.
A.	5 times
B.	6 times
C.	3 times
D.	1.5 times
Answer» B. 6 times

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8.	The ratio analysis is helpful to management in taking several decisions, but as a mechanical substitute for judgement and thinking, it is worse than useless.
A.	true
B.	false
C.	may be false
D.	both a and b
Answer» A. true

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9.	Profit for the objective of calculating a ratio may be taken as
A.	profit before tax but after interest
B.	profit before interest &tax
C.	profit after interest & tax
D.	all the above
Answer» D. all the above

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10.	If sales is Rs 5,00,000 & net profit is Rs 1,20,000 Net profit ratio is
A.	24%
B.	416%
C.	60%
D.	none of the above
Answer» A. 24%

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11.	General profitability ratios are based on
A.	investment
B.	sales
C.	a & b
D.	none of the above
Answer» B. sales

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12.	The ratios which reveal the final result of the managerial policies and performance is .
A.	turnover ratios.
B.	profitability ratios.
C.	short term solvency ratio.
D.	long term solvency ratio.
Answer» B. profitability ratios.

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13.	Return on investment is a .
A.	turnover ratios.
B.	short term solvency ratio.
C.	profitability ratios.
D.	long term solvency ratio.
Answer» C. profitability ratios.

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14.	Net profit ratio is a .
A.	turnover ratio.
B.	long term solvency ratio.
C.	short term solvency ratio
D.	profitability ratio.
Answer» D. profitability ratio.

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15.	Stock turnover ratio is a .
A.	turnover ratio.
B.	profitability ratio.
C.	short term solvency ratio.
D.	long term solvency ratio.
Answer» A. turnover ratio.

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16.	Current ratio is a
A.	short-term solvency ratio.
B.	long-term solvency ratio.
C.	profitability ratio.
D.	turnover ratio.
Answer» A. short-term solvency ratio.

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17.	Proprietary ratio is a .
A.	short-term solvency ratio.
B.	long-term solvency ratio.
C.	profitability ratio.
D.	turnover ratio.
Answer» B. long-term solvency ratio.

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18.	Fixed assets ratio is a
A.	short-term solvency ratio.
B.	long-term solvency ratio.
C.	profitability ratio.
D.	turnover ratio.
Answer» B. long-term solvency ratio.

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19.	Fixed assets turnover ratio is a
A.	short-term solvency ratio.
B.	long-term solvency ratio.
C.	profitability ratio.
D.	turnover ratio.
Answer» D. turnover ratio.

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20.	The ratio which measures the profit in relation to capital employed is known as
A.	return on investment.
B.	gross profit ratio.
C.	operating ratio.
D.	operating profit ratio.
Answer» A. return on investment.

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21.	The ratio which determines the profitability from the shareholder’s point of view is .
A.	return on investment.
B.	gross profit ratio.
C.	return on shareholders funds.
D.	operating profit ratio.
Answer» C. return on shareholders funds.

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22.	Return on equity is also called
A.	return on investment.
B.	gross profit ratio.
C.	return on shareholders funds.
D.	return on net worth.
Answer» D. return on net worth.

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23.	Preliminary expenses is an example of
A.	fixed assets.
B.	current assets.
C.	fictitious assets.
D.	current liabilities.
Answer» C. fictitious assets.

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24.	Prepaid expenses is an example of .
A.	fixed assets.
B.	current assets.
C.	fictitious assets.
D.	current liabilities.
Answer» B. current assets.

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25.	The ratio which is calculated to measure the productivity of total assets is
A.	return on equity.
B.	return on share holders funds.
C.	return on total assets.
D.	return on equity share holders’ funds.
Answer» C. return on total assets.

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26.	The ratio which shows the proportion of profits retained in the business out of the current year’s profits is
A.	retained earnings ratio.
B.	pay out ratio
C.	earnings per share.
D.	price earnings ratio.
Answer» A. retained earnings ratio.

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27.	The ratio which indicates earnings per share reflected by the market price is .
A.	retained earnings ratio.
B.	pay out ratio.
C.	earnings per share.
D.	price earnings ratio.
Answer» D. price earnings ratio.

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28.	The ratio establishes the relationship between profit before interest and tax and fixed interest charges is .
A.	interest cover ratio.
B.	fixed dividend cover ratio.
C.	debt service coverage ratio.
D.	dividend yield ratio.
Answer» A. interest cover ratio.

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29.	The ratio shows the preference dividend as a proportion of profit available for shareholders is
A.	interest cover ratio.
B.	fixed dividend cover ratio.
C.	debt service coverage ratio.
D.	dividend yield ratio.
Answer» B. fixed dividend cover ratio.

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30.	The dividend is related to the market value of shares in .
A.	interest cover ratio.
B.	fixed dividend cover ratio.
C.	debt service coverage ratio.
D.	dividend yield ratio.
Answer» D. dividend yield ratio.

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31.	Turnover ratio is also known as .
A.	activity ratios.
B.	solvency ratios.
C.	liquidity ratios.
D.	profitability ratios.
Answer» A. activity ratios.

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32.	Inventory or stock turnover ratio is also called .
A.	stock velocity ratio.
B.	debtors velocity ratio.
C.	creditors velocity ratio.
D.	working capital turnover ratio.
Answer» A. stock velocity ratio.

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33.	Which ratio is calculated to ascertain the efficiency of inventory management in terms of capital investment?
A.	stock velocity ratio.
B.	debtors velocity ratio.
C.	creditors velocity ratio.
D.	working capital turnover ratio.
Answer» A. stock velocity ratio.

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34.	The ratio which measures the relationship between the cost of goods sold and the amount of average inventory is
A.	stock turnover ratio.
B.	debtors velocity ratio.
C.	creditors velocity ratio.
D.	working capital turnover ratio.
Answer» A. stock turnover ratio.

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35.	Sales – Gross Profit = .
A.	net profit.
B.	administrative expenses.
C.	cost of production.
D.	cost of goods sold.
Answer» D. cost of goods sold.

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36.	Opening stock + purchases + direct expenses – closing stock =
A.	net profit.
B.	cost of production
C.	administrative expenses.
D.	cost of goods sold
Answer» D. cost of goods sold

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37.	Debtors turnover ratio is also called .
A.	stock turnover ratio.
B.	debtors velocity ratio.
C.	creditors velocity ratio.
D.	working capital turnover ratio
Answer» B. debtors velocity ratio.

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38.	Creditors turnover ratio is also called .
A.	stock turnover ratio.
B.	debtors velocity ratio.
C.	accounts payables ratio.
D.	working capital turnover ratio.
Answer» C. accounts payables ratio.

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39.	Which of the following shows details and results of the company's profitrelated activities for a period of time?
A.	balance sheet
B.	income statement
C.	statement of cash flows
D.	statement of financial position
Answer» B. income statement

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40.	Which of the following financial statements is also known as a statement of financial position?
A.	balance sheet
B.	statement of cash flows
C.	income statement
D.	none of the above
Answer» A. balance sheet

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41.	A firm has Capital of Rs. 10,00,000; Sales of Rs. 5,00,000; Gross Profit of Rs. 2,00,000 and Expenses of Rs.1,00,000. What is the Net Profit Ratio?
A.	20%,
B.	50%,
C.	10%,
D.	40%
Answer» A. 20%,

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42.	Which technique used for figures of two or more periods are placed side by side to facilitate easy and meaningful comparisons?
A.	comparative statement
B.	common‐size statement
C.	trend analysis
D.	none
Answer» A. comparative statement

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43.	Which of the following are techniques, tools or methods of analysis and interpretation of financial statements?
A.	ratio analysis
B.	average analysis
C.	trend analysis
D.	all of the above
Answer» D. all of the above

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44.	Which of the following is NOT a key ratio in the prediction of bankruptcy as developed by Edward Altman?
A.	debt to equity
B.	current ratio
C.	retained earnings as a percent of total assets
D.	total assets
Answer» A. debt to equity

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45.	_______________ ratios measure the ability of a firm to earn an adequate return on sales, total assets and invested capital.
A.	asset utilization
B.	liquidity
C.	profitability
D.	debt utilization
Answer» C. profitability

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46.	The ________ ratios help determines the degree of financial risk and earnings volatility present in a firm.
A.	profitability
B.	asset utilization
C.	liquidity
D.	none of the above.
Answer» C. liquidity

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47.	__________ analysis is the process of studying a series of ratios for a company and/or industry over time.
A.	dupont
B.	trend
C.	common size
D.	all of the above
Answer» C. common size

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48.	The ideal level of current ratio is
A.	4:2
B.	2:1
C.	both a and b
D.	none of the above
Answer» B. 2:1

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49.	The most precise test of liquidity is
A.	quick ratio
B.	current ratio
C.	absolute liquid ratio
D.	none of the above
Answer» C. absolute liquid ratio

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50.	Debt-equity ratio is a sub-part of
A.	short-term solvency ratio
B.	long-term solvency ratio
C.	debtors turnover ratio
D.	none of the above
Answer» A. short-term solvency ratio

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51.	Quick ratio is 1.8:1, current ratio is 2.7:1 and current liabilities are Rs 60,000. Determine value of stock.
A.	rs 54,000
B.	rs 60,000
C.	rs 1, 62,000
D.	none of the above
Answer» C. rs 1, 62,000

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52.	Funds flow statements are prepared so as to
A.	to identify the changes in working capital
B.	to identify reasons behind change in working capital
C.	to know the item-wise outflow of funds during given period
D.	all of the above
Answer» D. all of the above

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53.	Net Profit ratio is calculated by
A.	(gross profit/gross sales) *100
B.	(gross profit/net sales) *100
C.	(net profit/net sales) *100
D.	none of the above
Answer» C. (net profit/net sales) *100

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54.	If sales is Rs 5, 00,000 and net profit is Rs 1, 20,000 Net Profit ratio is
A.	24%
B.	41%
C.	60%
D.	none of the above
Answer» A. 24%

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55.	Operating ratio is calculated by
A.	(operating cost/gross sales) *100
B.	(operating cost/gross sales) *100
C.	(operating cost/net sales) *100
D.	none of the above
Answer» A. (operating cost/gross sales) *100

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50+ Analysis & interpretation of financial statement Solved MCQs

Stock is considered as a liquid asset as anytime it can be converted into cash immediately.

. Return on properties funds is also known as.

What will be the Gross Profit if , total sales is Rs 2,60,000,cost of net goods sold is Rs 2,00,000 & sales return is Rs10,000 ?

Which of the following is not included in current assets.

Liquidity ratios are expressed in

Working capital turnover ratio can be determined by :

Determine Working capital turnover ratio if, Current asset is Rs 1,50,000, current liability is Rs 1,00,000 & cost of goods sold is Rs 3,00,000.

The ratio analysis is helpful to management in taking several decisions, but as a mechanical substitute for judgement and thinking, it is worse than useless.

Profit for the objective of calculating a ratio may be taken as

If sales is Rs 5,00,000 & net profit is Rs 1,20,000 Net profit ratio is

General profitability ratios are based on

The ratios which reveal the final result of the managerial policies and performance is .

Return on investment is a .

Net profit ratio is a .

Stock turnover ratio is a .

Current ratio is a

Proprietary ratio is a .

Fixed assets ratio is a

Fixed assets turnover ratio is a

The ratio which measures the profit in relation to capital employed is known as

The ratio which determines the profitability from the shareholder’s point of view is .

Return on equity is also called

Preliminary expenses is an example of

Prepaid expenses is an example of .

The ratio which is calculated to measure the productivity of total assets is

The ratio which shows the proportion of profits retained in the business out of the current year’s profits is

The ratio which indicates earnings per share reflected by the market price is .

The ratio establishes the relationship between profit before interest and tax and fixed interest charges is .

The ratio shows the preference dividend as a proportion of profit available for shareholders is

The dividend is related to the market value of shares in .

Turnover ratio is also known as .

Inventory or stock turnover ratio is also called .

Which ratio is calculated to ascertain the efficiency of inventory management in terms of capital investment?

The ratio which measures the relationship between the cost of goods sold and the amount of average inventory is

Sales – Gross Profit = .

Opening stock + purchases + direct expenses – closing stock =

Debtors turnover ratio is also called .

Creditors turnover ratio is also called .

Which of the following shows details and results of the company's profitrelated activities for a period of time?

Which of the following financial statements is also known as a statement of financial position?

A firm has Capital of Rs. 10,00,000; Sales of Rs. 5,00,000; Gross Profit of Rs. 2,00,000 and Expenses of Rs.1,00,000. What is the Net Profit Ratio?

Which technique used for figures of two or more periods are placed side by side to facilitate easy and meaningful comparisons?

Which of the following are techniques, tools or methods of analysis and interpretation of financial statements?

Which of the following is NOT a key ratio in the prediction of bankruptcy as developed by Edward Altman?

_______________ ratios measure the ability of a firm to earn an adequate return on sales, total assets and invested capital.

The ________ ratios help determines the degree of financial risk and earnings volatility present in a firm.

__________ analysis is the process of studying a series of ratios for a company and/or industry over time.

The ideal level of current ratio is

The most precise test of liquidity is

Debt-equity ratio is a sub-part of

Quick ratio is 1.8:1, current ratio is 2.7:1 and current liabilities are Rs 60,000. Determine value of stock.

Funds flow statements are prepared so as to

Net Profit ratio is calculated by

If sales is Rs 5, 00,000 and net profit is Rs 1, 20,000 Net Profit ratio is

Operating ratio is calculated by