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Questions and Answers
What is the formula to calculate Current Ratio?
What is the formula to calculate Current Ratio?
How is Capital Employed calculated?
How is Capital Employed calculated?
What does the Cash Ratio measure?
What does the Cash Ratio measure?
Which formula correctly calculates the Gross Profit Margin?
Which formula correctly calculates the Gross Profit Margin?
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How do you compute the Inventory Turnover ratio?
How do you compute the Inventory Turnover ratio?
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What would be the Cash Ratio if the current liabilities are $200, and the cash available is $50?
What would be the Cash Ratio if the current liabilities are $200, and the cash available is $50?
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If a company has $300 in Current Assets, $150 in Inventory, and $100 in Current Liabilities, what is the Quick Ratio?
If a company has $300 in Current Assets, $150 in Inventory, and $100 in Current Liabilities, what is the Quick Ratio?
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A company's Current Assets are $400 and Current Liabilities are $200. What is its Current Ratio?
A company's Current Assets are $400 and Current Liabilities are $200. What is its Current Ratio?
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How would you calculate the Quick Ratio if the Current Assets are $450, including $200 in Inventory, and Current Liabilities are $250?
How would you calculate the Quick Ratio if the Current Assets are $450, including $200 in Inventory, and Current Liabilities are $250?
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Which of the following ratios does NOT include inventory in its calculation?
Which of the following ratios does NOT include inventory in its calculation?
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What does the Debt-to-Equity Ratio measure?
What does the Debt-to-Equity Ratio measure?
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How is the Debt-to-Assets Ratio calculated?
How is the Debt-to-Assets Ratio calculated?
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If a company has total liabilities of $500 and equity of $250, what is its Debt-to-Equity Ratio?
If a company has total liabilities of $500 and equity of $250, what is its Debt-to-Equity Ratio?
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In what situation would a high Debt-to-Assets Ratio be concerning for a company?
In what situation would a high Debt-to-Assets Ratio be concerning for a company?
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Which of the following best describes an increase in the Debt-to-Equity Ratio?
Which of the following best describes an increase in the Debt-to-Equity Ratio?
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What information is needed to calculate Gross Profit?
What information is needed to calculate Gross Profit?
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How is Gross Profit Margin expressed?
How is Gross Profit Margin expressed?
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If a company's Revenue is $500,000 and its COGS is $300,000, what is its Gross Profit Margin?
If a company's Revenue is $500,000 and its COGS is $300,000, what is its Gross Profit Margin?
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Which of the following describes Gross Profit?
Which of the following describes Gross Profit?
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If a company has a Gross Profit Margin of 25% and total Revenue of $400,000, what is the Gross Profit?
If a company has a Gross Profit Margin of 25% and total Revenue of $400,000, what is the Gross Profit?
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What is the formula to calculate the Cost of Goods Sold (COGS)?
What is the formula to calculate the Cost of Goods Sold (COGS)?
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How do you calculate the Average Inventory?
How do you calculate the Average Inventory?
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What is the correct formula for Inventory Turnover?
What is the correct formula for Inventory Turnover?
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Which of the following is used to find Receivables Turnover?
Which of the following is used to find Receivables Turnover?
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How is Payables Turnover calculated?
How is Payables Turnover calculated?
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Which of the following is an example of a current asset?
Which of the following is an example of a current asset?
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Which of these represents a current liability?
Which of these represents a current liability?
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Which of the following options is a type of current asset?
Which of the following options is a type of current asset?
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Which item is categorized as a current liability?
Which item is categorized as a current liability?
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Which of the following is NOT a current asset?
Which of the following is NOT a current asset?
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What does Total Shareholders' Employed or Funds consist of?
What does Total Shareholders' Employed or Funds consist of?
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How is Return on Shareholders' Capital Employed expressed?
How is Return on Shareholders' Capital Employed expressed?
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If the inventory increased from £402,438 in 2022 to £452,438 in 2023, what was the change in inventory?
If the inventory increased from £402,438 in 2022 to £452,438 in 2023, what was the change in inventory?
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What is required to calculate Return on Shareholders' Capital Employed?
What is required to calculate Return on Shareholders' Capital Employed?
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What does the term 'equity' refer to in the context of shareholders' capital employed?
What does the term 'equity' refer to in the context of shareholders' capital employed?
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What is the correct formula to calculate Return on Total Capital Employed?
What is the correct formula to calculate Return on Total Capital Employed?
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Which components are included in Total Shareholder's Equity?
Which components are included in Total Shareholder's Equity?
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If a company has a Net profit before interest & tax of $50,000 and Total Capital Employed of $200,000, what is the Return on Total Capital Employed?
If a company has a Net profit before interest & tax of $50,000 and Total Capital Employed of $200,000, what is the Return on Total Capital Employed?
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What is the purpose of calculating Return on Total Capital Employed?
What is the purpose of calculating Return on Total Capital Employed?
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What does the net profit margin represent in financial analysis?
What does the net profit margin represent in financial analysis?
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Which financial ratio would be calculated using distribution costs?
Which financial ratio would be calculated using distribution costs?
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In the formula for financial ratios, what does the denominator typically represent?
In the formula for financial ratios, what does the denominator typically represent?
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What kind of expenses might be included in the financial ratios examined?
What kind of expenses might be included in the financial ratios examined?
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Which of the following ratios is also referred to as 'operating margin'?
Which of the following ratios is also referred to as 'operating margin'?
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What does Return on Shareholders' Capital Employed primarily measure?
What does Return on Shareholders' Capital Employed primarily measure?
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Which of the following correctly defines the denominator of the Return on Shareholders' Capital Employed?
Which of the following correctly defines the denominator of the Return on Shareholders' Capital Employed?
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How is the Return on Total Capital Employed calculated?
How is the Return on Total Capital Employed calculated?
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What do the terms 'Issued Share Capital' and 'Reserves' collectively represent?
What do the terms 'Issued Share Capital' and 'Reserves' collectively represent?
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What does the gearing percentage indicate about a company?
What does the gearing percentage indicate about a company?
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Which of the following factors might cause variations in gearing percentages among companies within the same sector?
Which of the following factors might cause variations in gearing percentages among companies within the same sector?
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What is included in the total capital employed when calculating the gearing percentage?
What is included in the total capital employed when calculating the gearing percentage?
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If a company has a high gearing percentage, what might this suggest about its financial situation?
If a company has a high gearing percentage, what might this suggest about its financial situation?
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Which of the following calculations correctly represents the gearing percentage?
Which of the following calculations correctly represents the gearing percentage?
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What does the interest cover ratio measure?
What does the interest cover ratio measure?
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Which of the following components is NOT necessary to calculate the interest cover ratio?
Which of the following components is NOT necessary to calculate the interest cover ratio?
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How would a higher interest cover ratio generally be interpreted?
How would a higher interest cover ratio generally be interpreted?
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What is the formula for calculating the interest cover ratio?
What is the formula for calculating the interest cover ratio?
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Why is profit before interest and tax (PBIT) crucial in the interest cover ratio?
Why is profit before interest and tax (PBIT) crucial in the interest cover ratio?
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Study Notes
Financial Ratios
- Finding Assets: Assets = Liabilities + Equity
- Capital Employed: Capital Employed = Total Assets – Current Liabilities
-
Liquidity Ratios:
- Current Ratio: Current Assets / Current Liabilities
- Quick Ratio: (Current Assets - Inventory) / Current Liabilities
- Cash Ratio: Cash / Current Liabilities
-
Leverage Ratios:
- Debt-to-Equity Ratio: Total Liabilities / Equity
- Debt-to-Assets Ratio: Total Liabilities / Total Assets
-
Profitability Ratios:
- Gross Profit Margin: (Gross Profit / Revenue) x 100
- Gross Profit: Revenue – Cost of Goods Sold (COGS) Return on Shareholders Capital Employed = (Net profit before interest and tax/Total shareholders employed or funds) x 100 Return on Total capital employed = (net profit before interest and tax/ total capital employed) x 100
-
Efficiency Ratios:
- Inventory Turnover: COGS / Average Inventory
- COGS: Opening Inventory + Purchases - Closing Inventory
- Average Inventory: (Opening Inventory + Closing Inventory) / 2
- Receivables Turnover: Revenue / Average Receivables
- Payables Turnover: Purchases / Average Payables
- Asset Turnover: Revenue / Total Assets
-
Operational Ratios:
- Inventory Days: Closing Inventory / COGS
- Payable Days: Payables due within one year / Purchases
- Receivable Days: Receivables / Revenue
Current Assets (Owned by Company)
- Closing Inventory
- Receivables
- Prepayments
- Cash in the bank
Current Liabilities (Owed by Company)
- Bank Overdraft
- Bank loan due within one year
- Accruals
- Payables due within one year
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Description
This quiz covers essential financial ratios used in evaluating a company's performance, including liquidity, leverage, profitability, and efficiency ratios. Participants will learn how to calculate and interpret key financial indicators, making it a valuable resource for students and professionals in finance and accounting.
