Financial Ratio Analysis Quiz

What is the concept called that is important in financial ratio analysis?

• Debt

• Equity

• Leverage

• Gearing

What does gearing measure in a business?

• Capital structure

• Sales revenue

• Profitability

• Market share

What are the two main parts of a business's capital structure?

• Assets and liabilities

• Equity and debt

• Revenue and expenses

• Cash flow and investments

What does a high proportion of equity in a business's capital structure indicate?

• Stability

• High risk

• Flexibility

• Low risk

What is a benefit of having a high level of gearing in a business?

• Less capital investment by shareholders

• Lower interest rates

• Decreased profits

• Increased risk

What does a gearing ratio of less than 25% typically indicate?

• Normal gearing

• High gearing

• Low gearing

• Excessive gearing

What is a benefit of having low gearing in a business?

• Strong position for debt providers

• Less risk of failure due to debts

• Flexibility to add more debt

• Increased risk of failure

What is the formula to calculate the gearing percentage?

• Total capital / Equity

• Non-current liabilities / Equity

• Equity / Non-current liabilities

• Equity + Non-current liabilities

What is the main benefit of debt as a source of finance in a business?

• High returns for shareholders

• Decreased profits

• High flexibility

• Low cost

What is the main purpose of measuring gearing in a business?

• To evaluate market share

• To assess profitability

• To calculate sales revenue

• To analyze capital structure