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Prof.

Rahul Ghosale Mo No-9665383478/7744083478

MCQ of Financial Statement Analysis

1. Accounting Ratios are important tools used by


i. Managers, iii. Investors,
ii. Researchers iv. All of the above
2. Net Profit Ratio Signifies:
i. Operational Profitability iii. Big-term Solvency
ii. Liquidity Position iv. Profit for Lenders.
3. Working Capital Turnover measures the relationship of Working Capital with:
i. Fixed Assets iii. Purchases
ii. Sales iv. Stock.
4. In Ratio Analysis, the term Capital Employed refers to:
i. Equity Share iii. Shareholders' Funds
ii. Capital Net worth iv. None of the above.
5. Dividend Payout Ratio is:
i. PAT Capital iii. Pref. Dividend PAT
ii. DPS EPS iv. Pref. Dividend Equity Dividend.
6. DU PONT Analysis deals with:
i. Analysis of Current Assets iii. Capital Budgeting
ii. Analysis of Profit iv. Analysis of Fixed Assets.
7. In Net Profit Ratio, the denominator is:
i. Net Purchases iii. Credit Sales
ii. Net Sales iv. Cost of goods sold.
8. Inventory Turnover measures the relationship of inventory with:
i. Average Sales iii. Total Purchases
ii. Cost of Goods Sold iv. Total Assets.
9. The term 'EVA' is used for:
i. Extra Value Analysis iii. Expected Value Analysis
ii. Economic Value Added iv. Engineering Value Analysis.
10. Return on Investment may be improved by:
i. Increasing Turnover iii. Increasing Capital Utilization
ii. Reducing Expenses iv. All of the above.

11. In Current Ratio, Current Assets are compared with:

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Prof.Rahul Ghosale Mo No-9665383478/7744083478

i. Current Profit iii. Fixed Assets


ii. Current Liabilities iv. Equity Share Capital.
12. ABC Ltd. has a Current Ratio of 1.5: 1 and Net Current Assets of Rs. 5,00,000. What are the
Current Assets?
i. Rs. 5,00,000 iii. Rs. 15,00,000
ii. Rs. 10,00,000 iv. Rs. 25,00,000
13. There is deterioration in the management of working capital of XYZ Ltd. What does it refer
to?
i. That the Capital Employed has iii. That debtors collection period has
reduced increased
ii. That the Profitability has gone up iv. That Sales has decreased.
14. Which of the following does not help to increase Current Ratio?
i. Issue of Debentures to buy Stock iii. Sale of Investment to pay Creditors
ii. Issue of Debentures to pay Creditors iv. Avail Bank O/D to buy Machine
15. Debt to Total Assets Ratio can be improved by:
i. Borrowing More iii. Issue of Equity Shares
ii. Issue of Debentures iv. Redemption of Debt.
16. Ratio of Net Income to Number of Equity Shares known as:
i. Price Earnings Ratio iii. Earnings per Share
ii. Net Profit Ratio iv. Dividend per Share.
17. Trend Analysis helps comparing performance of a firm
i. With other firms, iii. With other industries
ii. Over a period of firm iv. None of the above.
18. A Current Ratio of Less than One means:
i. Current Liabilities < Current Assets iii. Current Assets < Current
ii. Fixed Assets > Current Assets
Liabilities,
iv. Share Capital > Current Assets.
19. 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?
i. 20% iii. 10%
ii. 50% iv. 40%.
20. XYZ Ltd. has earned 8% Return on Total Assests of Rs. 50,00,000 and has a Net Profit Ratio
of 5%. Find out the Sales of the firm.
i. Rs. 4,00,000 ii. Rs. 2,50,000

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Prof.Rahul Ghosale Mo No-9665383478/7744083478

iii. Rs. 80,00,000 iv. Rs. 83,33,333.


21. Suppliers and Creditors of a firm are interested in
i. Profitability Position iii. Market Share Position
ii. Liquidity Position iv. Debt Position.
22. Which of the following is a measure of Debt Service capacity of a firm?
i. Current Ratio iii. Interest Coverage Ratio
ii. Acid Test Ratio iv. Debtors Turnover.
23. Gross Profit Ratio for a firm remains same but the Net Profit Ratio is decreasing. The reason
for such behavior could be:
i. Increase in Costs of Goods Sold iii. Increase in Dividend
ii. If Increase in Expense iv. Decrease in Sales.
24. Which of the following statements is correct?
i. A Higher Receivable Turnover is not iii. Increase in Net Profit Ratio means
desirable increase in Sales
ii. Interest Coverage Ratio depends iv. Lower Debt-Equity Ratio means
upon Tax Rate, lower Financial Risk

25. Debt to Total Assets of a firm is .2. The Debt to Equity boo would be:
i. 0.80 iii. 1.00
ii. 0.25 iv. 0.75
26. Which of the following helps analysing return to equity Shareholders?
i. Return on Assets iii. Net Profit Ratio
ii. Earnings Per Share iv. Return on Investment.
27. Return on Assets and Return on Investment Ratios belong to:
i. Liquidity Ratios iii. Solvency Ratios
ii. Profitability Ratios iv. Turnover.
28. XYZ Ltd. has a Debt Equity Ratio of 1.5 as compared to 1.3 Industry average. It means that
the firm has:
i. Higher Liquidity iii. Higher Profitability
ii. Higher Financial Risk iv. Higher Capital Employed.
29. Ratio Analysis can be used to study liquidity, turnover, profitability, etc. of a firm. What does
Debt-Equity Ratio help to study?
i. Solvency iii. Profitability
ii. Liquidity iv. Turnover

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Prof.Rahul Ghosale Mo No-9665383478/7744083478

30. In Inventory Turnover calculation, what is taken in the numerator?

i. Sales iii. Opening Stock


ii. Cost of Goods Sold iv. Closing Stock.

31.The statement of cash flow is segregated into three categories:

i. Operating, Financing, iii. Investing, Operating,


Investing Accounting
ii. Operating, Financing, iv. Financing, Managing,
Managing Auditing

32.The statement of cash flow explains changes in _____ by listing the activities that increased
and decreased cash.

i. Current Asset iii. Cash


ii. Current Liabilities iv. Fixed Asset

33.The statement of cash flow can be prepared by using either the direct method or ______.

i. Indirect Method iii. Non current Method


ii. Current Method iv. None of the above

34.Under direct method, _________ cash flows are reported by major classes of operating cash
receipts and payments.

i. Financing iii. Investing


ii. Operating iv. None of the above

35.For a healthy growing firm generally __________ cash flows from operating activities are expected.

i. Negative iii. Null


ii. Positive iv. None of the above

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Prof.Rahul Ghosale Mo No-9665383478/7744083478

36.A summary of a firms changes in financial position from one period to another, it is called _____.
i. Sources iii. Uses
ii. Resources iv. Funds

37.The flow of funds statement portrays net rather than ___________ changes between two
comparable balance sheets at different dates.

i. Operating iii. Financial


ii. Gross iv. Investing

38.Any decrease in asset item represents

i. Uses of funds iii. Both a and b


ii. Sources of funds iv. None of the above

39.An increase in account receivables would be a __________.

i. Use of funds iii. Sources of funds


ii. Reuse of funds iv. Both a and c

40._______ is a bookkeeping entry that allocates the cost of assets against income but does not
involve any movement of capital.

i. Depletion iii. Depreciation


ii. Amortization iv. None of the above

41.Deferred taxes an item that often appear in the long term portion of a firms
balance sheet.

i. Assets iii. liability


ii. owners equity iv. current assets

42.Deferred taxes most commonly arises when a firm determines .. Expenses in


its published financial statement on a different basis then in its tax return.
a) Direct expense c) indirect expense
b) depreciation d) tax expense

e)

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Prof.Rahul Ghosale Mo No-9665383478/7744083478

43.Most likely a company chooses depreciation method for its published income
statement.

i. MACRS iii. straight line method


ii. simple method
iv. double decline method

44.For tax purpose company uses the depreciation method.


i. MACRS iii. straight line method
ii. simple method iv. double decline

45.By analyzing ________ ratio, we know the reason of growing inventory and receivables.

i. Activity iii. Market


ii. Profitability iv. Liquidity

46.An analysis of percentage of financial statements where all the balance sheet items are
divided by total assets and all income statement items are divided by net sales and revenue, is
called

i. Trend analysis iii. Vertical analysis


ii. Common size analysis iv. Index analysis

47.An analysis of percentage of financial statements where all the balance sheet or income
statement figures for a base year equals 100.

i. Trend analysis iii. Vertical analysis


ii. Common size analysis iv. Index analysis

48.Which of the following would be considered a use of funds?

i. a decrease in accounts iii. an increase in account


receivable. payable.
ii. a decrease in cash. iv. an increase in cash.

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Prof.Rahul Ghosale Mo No-9665383478/7744083478

49.Which of the following is NOT a cash outflow for the firm?

i. depreciation. iii. interest payments.


ii. dividends. iv. taxes.

50.An examination of the sources and uses of funds statement is part of:

i. A forecasting iii. A ratio analysis.


iv. Calculations for the
technique.
ii. A funds flow analysis. balance sheet.

51.Uses of funds include a (an):

i. decrease in cash. iii. increase in fixed assets.


ii. increase in any liability. iv. tax refund.

52.According to the Financial Accounting Standards Board (FASB), which of the following is a
cash flow from a "financing" activity?

i. cash outflow to the government for iii. cash outflow to lenders as interest.
iv. cash outflow to purchase bonds
taxes.
ii. cash outflow to shareholders as issued by another company.
dividends.

53._________ provides a financial summary of the firms operating results during a specified
period.

i. Balance sheet iii. Cash flow statement


ii. Income statement iv. Statement of retained earning

54.Firms financial position at a given point in time is stated in ________.

i. Balance sheet iii. Capital budgeting


ii. Income statement iv. None of the above

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Prof.Rahul Ghosale Mo No-9665383478/7744083478

55.The times interest earned ratio, sometimes also called the________________.

i. Total Asset Turnover iii. Fixed-Payment Coverage Ratio


ii. Average Payment Period iv. Interest coverage ratio

56.A popular tool for evaluating profitability in relation to sales is the _________________.

i. Liquidity Ratios iii. Quick Ratio


ii. Common-size income iv. Cash Ratio
statement
57.Which of the following three is not frequently cited ratio of profitability that can be read
directly from the common-size income statement?

i. Gross profit margin, iii. Net profit margin


ii. Operating profit margin, iv. Return on Total Assets

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