PM - CH-4 Ratio

The following are types Of key performance indicators (KPIS):

(i) Return on capital employed

(ii) Gross profit percentage

(iii) Acid test ratio

(ivy Gearing ratio

Which of the above KPIs would be used to assess the liquidity Of a company?

• (i) and (ii)

• (iii) only

• (iv) only

• (iii) and (iv)

Why would a company want to encourage the use of non-financial performance

indicators?

• TO encourage short-termism

• To look at the fuller picture of the business

• To enable results to be easily manipulated to the benefit of the manager

• To prevent goal congruence

The following extracts relate to Company X and Company Y for 20Xl Revenue 20,000 26,000

Cost of sales (15,400 (21,050)

Gross profit 4,600 4,900

Expenses 2,460 2,770

Operating profit 2,140 2,180

What is the operating profit margin for companies for 20XI?

• 10.7%,8.38%

• 8.38%,10.7%

• 23%,19%

• 12%,10%

Companies A and B are both involved in retailing.

ended 30 September 20X1 was as follows:

Relevant information for the year

Sales revenue- 50,000 2,00,000

Profit- 10,000 10,000

Capital employed- 50,000 50,000

Which Of the following statements is true?

• The profit margin of both companies is the same

• Company B is generating more profit from every $1 Of asset employed than Company A

• Company B is using its assets more efficiently

• Company B is controlling its costs better than Company A

The trading account Of Calypso for the year ended 30 June 20XO is set out below:

Sales

Opening inventories-50,000

Purchases-312,500

Closing inventories-312,500

Cost of sales-312,500

Gross profit-105,500

The following amounts have extracted from the company'S statement Of financial

position at 30 June 20XO.

Trade receivables-60,000

Prepayments-4,000

Cash in hand-6,000

Bank overdraft-8,000

Trade payables-40,000

Accruals-3,000

Declared dividends-5,000

Which one of the following correctly gives the inventories holding period (using average

inventories) and the current ratio for Calypso Ltd for the period?

• 33 days,1.25:1

• 49 days,1.25:1

• 49 days,1.93:1

• 33 days,1.93:1

Binny Co has annual sales of and a current ratio of 3.2:1. All of its sales are for

cash and are priced at a mark-up on cost Of 50%. The average cash balance is $40,000 and

the inventory holding period is 90 days.

Assuming 360 days in a year, what is Binny CO's quick ratio (acid test ratio)?

• 0.64

• 0.53

• 0.80

• 1.56

The following information is available for Pind CO. a manufacturing company. You are

provided with an extract from the Statement Of Profit or Loss:

Operating profit-42,000

Interest charges-(16,000)

Profit before tax-26,000

Taxation-(5,460)

20,540

Pind Co has an operating profit margin of 15%. You are provided with an extract from its

Statement of Financial Position:

Equity and reserves

Total equity and reserves-420,000

Non.current liabilities

Loan-150,000

5% Preference shares-40,000

Current liabilities

Payables-50,000

Which TWO Of the following statements are correct?

1.A reduction in the tax rate will improve the interest cover ratio.

2.If the level of long term debt in Pind Co is reduced, the interest cover and

dividend cover ratios will improve.

3.If the level of long term debt in Pind Co is reduced, the asset turnover ratio will

improve.

4.Financial gearing is a measure of risk, but interest cover is a measure of

profitability.

• (1) and (2)

• (2) and (3)

• (3) and (4)

• (1) and (4)

Which TWO Of the following statements are correct?

1. 1. A reduction in the tax rate will improve the interest cover ratio.

2. 2. If the level of long term debt in Pind Co is reduced, the interest cover and

dividend cover ratios will improve.

3. 3. If the level of long term debt in Pind Co is reduced, the asset turnover ratio will

improve,

4. 4. Financial gearing is a measure of risk, but interest cover is a measure of

profitability.

• (1) and (2)

• (2) and (3)

• (3) and (4)

• (1) and (4)

Pind co has a current ratio Of 1.5 and a quick ratio Of 0.9.

If cash in the bank is used to pay some Of the payable, what will be the effect on the

current and quick ratios?

• Increase,Increase

• Increase,Decrease

• Decrease,Increase

• Decrease,Decrease

Which of the following statement(s) is/are true?

If the turnover of Pind Co increased by 20%, the asset turnover would increase

by 20%.

If Pind co has a different depreciation policy to its competitors, the asset

turnover ratio will not be comparable.

• (1) only

• (2) only

• Both (1) and (2)

• Neither (I) nor (2)