Chapter 25: Analysis of accounts

1 The formula for the return on capital employed ratio (%) is:

1) gross profit ÷ total assets × 100

2) net profit ÷ current assets × 100

3) net profit ÷ capital employed × 100

4) net profit ÷ sales revenue × 100

2 The formula for the gross profit margin (%) is:

1) gross profit ÷ sales revenue × 100

2) gross profit ÷ net profit × 100

3) gross profit ÷ net assets × 100

4) sales revenue ÷ gross profit × 100

• 1)

• 2)

• 3)

• 4)

3 The formula for the net profit margin (%) is:

1) sales revenue ÷ net profit x 100

2) net profit ÷ sales revenue x 100

3) gross profit – overhead expenses

4) net profit ÷ overhead expenses x 100

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• 2)

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• 4)

4 A company’s net profit margin fell from 15% last year to 12% this year. The best explanation for this change is:

1) sales increased and costs fell

2) overhead expenses rose by more than sales revenue

3) gross profit margin rose and sales revenue increased

4) overhead expenses fell by more than sales revenue

• 1)

• 2)

• 3)

• 4)

For questions 5, 6 and 7, refer to the data in the attached document from Spice Co.Ltd (year ending 31/3/13).

Sales revenue $150 000

Gross profit $50 000

Overhead expenses $35 000

Capital employed $200 000

5 The gross profit margin was:

1) 13.3%

2) 30%

3) 31.25%

4) 33.3%

• 1)

• 2)

• 3)

• 4)

For questions 5, 6 and 7, refer to the data in the attached document from Spice Co.Ltd (year ending 31/3/13).

Sales revenue $150 000

Gross profit $50 000

Overhead expenses $35 000

Capital employed $200 000

6 The net profit margin was:

1) 1%

2) 10%

3) 15%

4) 20%

• 1)

• 2)

• 3)

• 4)

For questions 5, 6 and 7, refer to the data in the attached document from Spice Co.Ltd (year ending 31/3/13).

Sales revenue $150 000

Gross profit $50 000

Overhead expenses $35 000

Capital employed $200 000

7 The return on capital employed was:

1) 7.5%

2) 15%

3) 25%

4) 75%

• 1)

• 2)

• 3)

• 4)

For questions 8 and 9, refer to the data in the attached document from AZCO Ltd’s Balance Sheet.

Current liabilities $30 000

Current assets $45 000

Of which:

Debtors $15 000

Inventories $25 000

8 The value of the company’s current ratio was:

1) 1.25

2) 1

3) 1.5

4) 2

• 1)

• 2)

• 3)

• 4)

For questions 8 and 9, refer to the data in the attached document from AZCO Ltd’s Balance Sheet.

Current liabilities $30 000

Current assets $45 000

Of which:

Debtors $15 000

Inventories $25 000

9 The value of the company’s acid test ratio was:

1) 0.67

2) 1.25

3) 1.5

4) 2

• 1)

• 2)

• 3)

• 4)

10 ‘The liquidity of our business is declining’. Which one of the following statements best explains this quote?

1) The business is making less profit than last year

2) The business has run out of cash

3) The business is finding it more difficult to pay short term debts

4) The business is holding more current assets compared to current liabilities than last year

• 1)

• 2)

• 3)

• 4)