IGCSE Business Test on Business Ratios

What is the formula for calculating gross profit margin?

• Gross Profit Margin = (Net Profit / Revenue) x 100

• Gross Profit Margin = (Cost of Goods Sold / Revenue) x 100

• Gross Profit Margin = (Operating Profit / Revenue) x 100

• Gross Profit Margin = (Gross Profit / Revenue) x 100

Calculate the return on capital employed if the net profit is $50,000 and the capital employed is $200,000.

• 75%

• 50%

• 25%

• 10%

Explain the significance of the quick ratio in assessing a company's liquidity.

• The quick ratio is significant in assessing a company's liquidity because it provides a more conservative measure of the company's ability to meet its short-term obligations.

• The quick ratio only considers the company's fixed assets

• The quick ratio is irrelevant in assessing a company's liquidity

• The quick ratio is used to measure the company's long-term financial stability

What is the formula for calculating the current ratio?

• Current assets / Current liabilities

• Fixed assets / Current assets

• Net income / Total assets

• Total assets / Total liabilities

If a company has current assets of $100,000 and current liabilities of $50,000, what is its current ratio?

• 3

• 1.5

• 2

• 0.5

What does the inventory turnover ratio indicate about a company's efficiency?

• It indicates the company's profit margin

• It indicates the company's marketing strategy

• It indicates how efficiently a company is managing its inventory.

• It indicates the company's employee satisfaction

Define the term 'efficiency ratios' in the context of business analysis.

• Efficiency ratios measure the market share of a business

• Efficiency ratios measure the number of employees in a business

• Efficiency ratios measure how well a business utilizes its assets and liabilities to generate sales and cash flow.

• Efficiency ratios measure the profit of a business

Calculate the accounts receivable turnover ratio if the net credit sales are $500,000 and the average accounts receivable is $100,000.

• 5

• 3

• 7

• 10

Why is the current ratio considered an important indicator of a company's short-term financial health?

• It only reflects the company's profitability.

• It has no relevance to a company's financial health.

• It measures a company's ability to pay its short-term liabilities with its short-term assets.

• It measures a company's ability to pay its long-term liabilities with its long-term assets.

Explain how the asset turnover ratio can be used to evaluate a company's efficiency.

• The asset turnover ratio evaluates the company's liquidity

• The asset turnover ratio measures the company's profitability

• The asset turnover ratio assesses the company's solvency

• The asset turnover ratio can be used to evaluate a company's efficiency by measuring how effectively the company is using its assets to generate sales.