Financial Analysis and Cash Flow Quiz

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Questions and Answers

What is the significance of Ratio analysis?

Ratio analysis is a tool used to evaluate the financial performance of businesses and companies. It helps in analyzing the financial statements by calculating ratios between different line items to identify financial strengths and weaknesses, trends and patterns of performance, improve profitability and forecast future performance.

Explain Liquidity Ratio and Profitability Ratios.

Liquidity ratios measure a company's ability to meet short-term obligations. Some common examples are the current ratio and the quick ratio. Profitability ratios measure a company's financial performance over a period and are used by investors to assess the company's potential for future profitability. Some common examples are the Gross Profit Ratio, Net Profit Ratio, and Return on Equity.

What is the significance of cash flow statement?

The cash flow statement shows the movement of cash into and out of a company during a specific period. It provides a clear picture of the company's cash flow from operations, investing, and financing activities. It is crucial for understanding the company's cash availability, making informed financial decisions, and assessing its ability to generate cash to meet its obligations.

Gaurav started business with Rs. 10,00,000 of which ______% amount was borrowed from wife.

25 Signup and view all the answers

Purchased goods from Aniket worth Rs. 40,000 at 20% Trade Discount and ______th amount paid in cash

1/5 Signup and view all the answers

Sold goods to Vishakha Rs. 30,000 at ______% TD and received 30% amount in cash.

30 Signup and view all the answers

From the following Trial Balance of Mr. Johnson, prepare the Trading, Profit and Loss Account and Balance Sheet for the year ended 31-3-2014.

Trading, Profit and Loss Account and Balance Sheet for the year ended 31-3-2014 should be prepared based on the given trial balance. Please refer to your accounting textbook or study materials for guidance on how to prepare these financial statements. Signup and view all the answers

Personal and cash accounts are kept in ---------- system

Quasi single entry system Signup and view all the answers

---------- is a un systematic, un scientific and incomplete system

Single entry system Signup and view all the answers

Profit is only an estimate in this system

Single entry system Signup and view all the answers

Expand GAAP

Generally accepted accounting principles Signup and view all the answers

Accounting concepts include certain basic ----------

Assumptions Signup and view all the answers

The comparison of one accounting period with that of the past is possible when one of the concepts given is followed

Consistency Signup and view all the answers

Contingent liabilities are shown as a foot note in the balance sheet as per ---------- accounting principle

Full disclosure Signup and view all the answers

State the principle:- which assumed the business will last fore a long time

Going concern Signup and view all the answers

When a company issues shares to vendors of assets for consideration other than cash these are issued ----------

Any of these Signup and view all the answers

"Proposed dividends" is shown in the Balance Sheet of a company under the head:

Provisions Signup and view all the answers

Share Allotment Account is a:

Personal Account Signup and view all the answers

When shares are forfeited, the Called Up Amount on shares is debited to -

Shares Forfeited Account Signup and view all the answers

That portion of Share Capital which can be called up only on the winding up of the Company is

Reserve Capital Signup and view all the answers

Dividends are usually paid as a percentage of

Net profit Signup and view all the answers

While preparing cash flow statement, conversion of debt to equity

Should not be shown as it is a non-cash transaction. Signup and view all the answers

Which of the following would be considered a 'cash-flow item from an “investing” activity'?

Cash outflow to purchase bonds issued by another company. Signup and view all the answers

On January 1, Sohan paid rent of` 5,000. This can be classified as

A transaction. Signup and view all the answers

On March 31, 2015 after sale of goods worth、2,000, he is left with the closing inventory of ` 10,000. This is

An event. Signup and view all the answers

Lenders are interested in ---------- to judge the fi rm's ability to pay off current interest and instalments

Debt Service Coverage Ratio Signup and view all the answers

The ratio, which indicates the proportion of owner's fund to total fund invested in the business

Equity Ratio Signup and view all the answers

Study Notes

Section A - Question 1

Ratio analysis is crucial for evaluating a company's financial health.
Liquidity ratios assess the ability to meet short-term obligations; profitability ratios indicate how efficiently a company utilizes resources to generate profit.

Section A - Question 2

Cash flow statements track the movement of cash in and out of a business.
They provide insights into a company's operating, investing, and financing activities.

Section A - Question 3

June 1, 2018: Gaurav started a business with a capital of Rs. 10,00,000, borrowing Rs. 2,50,000 from his wife.
June 4, 2018: Purchased goods worth Rs. 40,000 from Aniket at a 20% trade discount; paid Rs. 8,000 in cash.
June 7, 2018: Made cash purchases amounting to Rs. 25,000.
June 10, 2018: Sold goods to Vishakha for Rs. 30,000, receiving Rs. 9,000 in cash.
June 12, 2018: Deposited Rs. 20,000 into the bank.
June 15, 2018: Uninsured goods were destroyed by fire amounting to Rs. 5,500.
June 19, 2018: Received Rs. 3,500 in commission.
June 22, 2018: Paid Rs. 25,500 to Aniket to fully settle the account.
June 25, 2018: Rs. 1,000 was stolen from the cash box.
June 27, 2018: Received Rs. 14,500 from Vishakha, allowing a discount of Rs. 200.
June 30, 2018: Received interest of Rs. 2,400 directly credited to the bank account.

Section B - Question 4

The provided data includes a trial balance.
This data is used to prepare trading and profit/loss accounts as well as balance sheets for the fiscal year ending March 31, 2014.
Adjustments are provided for stock valuation, outstanding wages, salaries, prepaid insurance, depreciation on specific fixed assets, write off of bad debts and providing for bad debts reserve.

Section C - Question 1

Question 1(a): Long-Term Debt to Total Assets Ratio calculation involves dividing long-term debt by total assets.
Question 1(b): Net Profit Ratio is determined by dividing net profit by net sales.

Section C - Question 2

**Question 2(c):**Return on Total Assets (ROA) is calculated by dividing net profit by total assets.
Question 2(d): Return on Equity (ROE) is calculated by dividing net profit by shareholder's equity.

Additional Questions

Various accounting concepts and principles are covered, including single-entry vs. double-entry systems, profitability calculations, and accounting principles like GAAP, matching, consistency, materiality, going concern, and full disclosure.
The role of dividends, cash flow statements, and inventory valuations in financial reporting.

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Description

This quiz covers essential concepts in financial analysis, focusing on ratio analysis and cash flow statements. Test your understanding of liquidity and profitability ratios, and apply your knowledge to practical business scenarios involving capital and transactions.