Multiple Choice (Lec 4 & 5)

Questions 24, 25, 26, and 27 use the following information: The following information is from the annual report of Thunderstruck Ltd: Statement of financial position of Thunderstruck Ltd as at 31 December 2015 *Assets* *Non-current assets* ----Property plant and equipment ------------ 120 *Current Assets* ----Inventory -----------30 ----Trade receivables -40 ----Cash ----------------40 Total current assets --*110* -----------------------*230* *Equity and Liabilities* *Equity* ----Share capital -------40 ----Retained earnings -35 ------------------------*75* *Non-current liabilities* ----Long-term borrowing---------------------------110 *Current liabilities* Trade payables --------45 -----------------------*155* -----------------------*230* Income statement extract of Thunderstruck Ltd for the year ended 31 December 2015 Revenue ---------------250 Gross profit ------------75 Operating profit -------45 Profit for the period ---25 From the information provide above, calculate the Acid test ratio a) 2.44 b) 2 c) 1.48 d) 1.77

1.77

Questions 24, 25, 26, and 27 use the following information: The following information is from the annual report of Thunderstruck Ltd: Statement of financial position of Thunderstruck Ltd as at 31 December 2015 *Assets* *Non-current assets* ----Property plant and equipment ------------ 120 *Current Assets* ----Inventory -----------30 ----Trade receivables -40 ----Cash ----------------40 Total current assets --*110* -----------------------*230* *Equity and Liabilities* *Equity* ----Share capital -------40 ----Retained earnings -35 ------------------------*75* *Non-current liabilities* ----Long-term borrowing---------------------------110 *Current liabilities* Trade payables --------45 -----------------------*155* -----------------------*230* Income statement extract of Thunderstruck Ltd for the year ended 31 December 2015 Revenue ---------------250 Gross profit ------------75 Operating profit -------45 Profit for the period ---25 From the information provide above, calculate the current ratio a) 1.48 b) 2.44 c) 2 d) 1.77

2.44

Questions 24, 25, 26, and 27 use the following information: The following information is from the annual report of Thunderstruck Ltd: Statement of financial position of Thunderstruck Ltd as at 31 December 2015 *Assets* *Non-current assets* ----Property plant and equipment ------------ 120 *Current Assets* ----Inventory -----------30 ----Trade receivables -40 ----Cash ----------------40 Total current assets --*110* -----------------------*230* *Equity and Liabilities* *Equity* ----Share capital -------40 ----Retained earnings -35 ------------------------*75* *Non-current liabilities* ----Long-term borrowing---------------------------110 *Current liabilities* Trade payables --------45 -----------------------*155* -----------------------*230* Income statement extract of Thunderstruck Ltd for the year ended 31 December 2015 Revenue ---------------250 Gross profit ------------75 Operating profit -------45 Profit for the period ---25 From the information provide above, calculate the gross profit margin a) 40% b) 30% c) 10% d) 18%

30%

If a company reported a profit for the year of £800,000, share capital of £18m and a share price of £9 - what is the earnings per share (EPS)? a) 10p per share b) 40p per share c) 22.5p per share d) 20.5p per share

40p per share

Questions 24, 25, 26, and 27 use the following information: The following information is from the annual report of Thunderstruck Ltd: Statement of financial position of Thunderstruck Ltd as at 31 December 2015 *Assets* *Non-current assets* ----Property plant and equipment ------------ 120 *Current Assets* ----Inventory -----------30 ----Trade receivables -40 ----Cash ----------------40 Total current assets --*110* -----------------------*230* *Equity and Liabilities* *Equity* ----Share capital -------40 ----Retained earnings -35 ------------------------*75* *Non-current liabilities* ----Long-term borrowing---------------------------110 *Current liabilities* Trade payables --------45 -----------------------*155* -----------------------*230* Income statement extract of Thunderstruck Ltd for the year ended 31 December 2015 Revenue ---------------250 Gross profit ------------75 Operating profit -------45 Profit for the period ---25 From the information provide above, calculate the settlement period for trade receivables a) 6.25 days b) 58.4 days c) 65.7 days d) 16 days

58.4 days

Which of the following statements about the current ratio is false? a) It is determined by dividing current assets by current liabilities b) A firm with a lower current ratio is better off than one with a higher current ratio c) The higher the current ratio, the more liquid the business is considered to be. d) It is larger than the quick ratio

A firm with a lower current ratio is better off than one with a higher current ratio

The acid test ratio is normally defined as current assets (excluding inventory) divided by which one of the following? a) Non-current assets b) Working capital c) Non-current liabilities d) Current liabilities

Current liabilities

Which of the following ratios considers the relationship between current assets and current liabilities? a) Quick ratio b) Current ratio c) Gearing ratio d) ROCE

Current ratio

A measure of a corporation's profitability that is required to be reported as part of the income statement is the: a) Earnings per share b) Sales revenue per employee c) ROCE d) Gross profit margin

Earnings per share

Inventory is an example of a quick asset. a) True b) False

False

Non-current liabilities are used in the calculation of the current ratio a) True b) False

False

The lower the current ratio, the more liquid the company appears. a) True b) False

False

The return on capital employed (ROCE) shows how "solvent" a company is a) True b) False

False

The gross profit margin ratio is calculated according to which one of the following formulae? a) Gross profit divided by share capital (as a percentage) b) Gross profit divided by purchases (as a percentage) c) Gross profit divided by cost of sales (as a percentage) d) Gross profit divided by sales revenue (as a percentage)

Gross profit divided by sales revenue (as a percentage)

Short-term creditors are most likely to use the quick ratio instead of the current ratio in evaluating the solvency of a company with large, slow-moving: a) Plant and equipment. b) Receivables. c) Inventories. d) Employees

Inventories

Which of the following ratios considers the relationship between inventory and cost of sales? a) Average settlement period for payables b) Sales revenue to capital employed c) Inventory turnover ratio d) Average settlement period for receivables

Inventory turnover ratio

The price earnings ratio, dividend per share and dividend yield provide information on: a) Investment b) Liquidity c) Profitability d) Utilization of assets

Investment

A high price-earnings (PE) ratio reflects which one of the following comments? a) The company's expenses have been increasing at a greater rate than its share price b) Many more investors are selling shares rather than buying shares in the company c) Investors are confident about the future earnings of the business d) Investors are lacking confidence about the future earnings of business

Investors are confident about the future earnings of the business

Return on ordinary shareholders' funds(ROSF) is within which one of the following groups of ratios? a) Liquidity b) Profitability c) Investment d) Efficiency

Profitability

A gearing ratio of above 50% suggests: a) The company is profitable b) The company is over-reliant on borrowing c) The company is financed mostly by equity d) The company is almost bankrupt

The company is over-reliant on borrowing

If you are informed that the company's earnings per share have tripled in the current year, which one of the following is correct? a) The company's profitability relating to each share has definitely improved in the year b) The company has definitely not issued more shares in the year c) The company's profitability relating to each share has definitely declined in the year d) The company has definitely issued more shares in the year

The company's profitability relating to each share has definitely improved in the year

If a supplier was interested in whether or not they will be paid on time, which of the calculations would they make? a) Trade receivables / credit sales revenue x 365 b) Credit sales revenue / Trade receivables x 365 c) Trade payables / Cost of sales x 365 d) Cost of sales / Trade payables x 365

Trade payables / Cost of sales x 365

If a company was interested in calculating how long it takes to receive money from customers, which of the calculations would they make? a) Trade receivables / credit sales revenue x 365 b) Credit sales revenue / Trade receivables x 365 c) Trade payables / Cost of sales x 365 d) Cost of sales / Trade payables x 365

Trade receivables / credit sales revenue x 365

One way to improve return on capital employed (ROCE) is to reduce costs and increase sales a) True b) False

True

The inventory turnover ratio indicates how quickly inventory sells. a) True b) False

True

The current ratio will be ------------------------- the quick ratio. a) less than b) greater than or equal to c) the same as d) always different than

greater than or equal to

Fishing Lures Inc. reported a net profit for the year equal to £15,000. The dividends declared & paid to the common shareholders equalled £5,000. Fishing Lures Inc. had 10,000 ordinary shares outstanding all year long. What is earnings per share? a) £.50 b) £1.00 c) £1.50 d) £2.00

£1.50