Tag: tools for financial analysis

Questions Related to tools for financial analysis

Select the correct statement.

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  1. General reserve is created out of divisible profits

  2. General reserve is used for some specified purposes

  3. Revenue reserve include capital reverse also

  4. All the three

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Correct Option: A
Explanation:

General reserve is created out of divisible profits. This is the only true statement. General reserve is created to meet any future uncertainties, they are basically the retained earnings of the company.  

Which of the following statements are false?
A) When all the figures in a balance sheet are stated as percentage of the total, it is termed as horizontal analysis. 
B) When financial statements of several years are analyzed, it is termed as vertical analysis. 
C) Vertical Analysis is also termed as dynamic analysis. 

trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

  1. Both A and B

  2. Both A and C

  3. Both B and C

  4. A, B and C

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Correct Option: B
Explanation:
Statements are A and C are false. 
A) False. When all figures in the balance sheet are stated as percentage of the total, its termed as vertical or common-size analysis. 
C) False. Horizontal analysis is termed as dynamic analysis. Vertical analysis is done to review and analysis the financial statements for a year only and therefore it is also called static analysis.

A company discloses the following information in relation to its receivables in the notes to its financial statements.
Gross amount receivable - Rs. 4,800
Provision for doubtful debts - Rs. 360
Net Carrying amount of receivable - Rs. 4,400
Which one of the following is the maximum credit risk that it must also disclose in the notes to comply with IFRS 7?

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  1. Rs. 360

  2. Rs. 4,400

  3. Rs. 4,800

  4. No disclosure is required

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Correct Option: D

A firm has an Return on Assets (ROA) of 14%, a debt/equity ratio of 0.8, a tax rate of 35%, and the interest rate on the debt is 10%. What is the firm's Return on Equity (ROE)? 

trend analysis tools for financial analysis analysis of financial statements financial statement analysis accountancy

  1. 11.18%

  2. 8.97%

  3. 11.54%

  4. 12.62%

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Correct Option: A