Knowledge: Ratio analysis

What does the gross profit margin describe?

• Gross profit earned per dollar of revenue

• Costs incurred per dollar of products sold

• Gross profit earned per dollar of capital employed

• Gross profit earned per dollar of net profit earned

Which of the following actions would not help in raising a firm’s gross profit margin?

• Optimizing the marketing mix

• Using cheaper raw material suppliers

• Reducing fixed and indirect costs

• Cutting the number of staff employed in the manufacturing process

Which of the following actions would help in raising a firm’s net profit margin?

• Reducing fixed costs such as rental expenses

• Reducing indirect costs such as insurance expenses

• Boosting gross profit margins

• All of the above

Return on capital employed (ROCE) is a(n) ____________ ratio.

• Profitability

• Efficiency

• Liquidity

• Profitability and Efficiency

What formula is used to calculate ROCE?

• Total dividends / capital employed × 100%

• Net profit after interest and tax / total share capital × 100%

• Net profit before interest and tax / capital employed × 100%

• Gross profit / net profit after interest and tax × 100%

With reference to the table below, what is the ROCE?

• 3.18%

• 3.83%

• 4.53%

• 5.76%

What are ratios which seek to assess the ability of a firm to meet short-term obligations called?

• Profitability ratios

• Efficiency ratios

• Liquidity ratios

• Current ratios

If a firm has $7,589 in cash and $17,833 worth of stock on hand, and $14,751 in current liabilities due to suppliers, what is the current ratio?

• 0.51

• 1.21

• 1.74

• 2.25

With reference to the table below, what is the firm’s quick ratio (acid test)?

• 1.10

• 1.25

• 2.15

• 2.53

Typically, one would like their firm’s _________ to range between 1.5-2, and their firm’s ________ to be at least 1.

• Quick ratio, current ratio

• ROCE, net profit margin

• Current ratio, gearing ratio

• Current ratio, acid test ratio