Tag: ratio analysis

Questions Related to ratio analysis

Large inventory accumulation is anticipation of price rise in future.

elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

  1. Inventory turnover ratio

  2. Fixed charge coverage ratio

  3. Debt to Equity ratio

  4. None of these

Show answer
Correct Option: A

If gross profit ratio is $25\%$ on cost, it is _________ $\%$ on sales.

elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

  1. $33.33\%$

  2. $20\%$

  3. $25\%$

  4. $50\%$

Show answer
Correct Option: B
Explanation:

Cost + Gross profit = Sales

Let cost = $100$ and Gross profit ratio = $25\%$ on cost
Therefore Gross profit = $25\%$ x $100$ = $25$
So, $100 + 25$ = Sales
Sales = $125$
Gross profit as percentage on sales = [Gross profit/Sales] x $100$
                                                             = [$25/125$] x $100$
                                                              = $20\%$.

Borrowing from short term and investing in long term assets indicated by _________________.

elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

  1. Current assets to fixed assets ratio

  2. Current ratio

  3. Fixed assets turnover ratio

  4. Inventory turnover ratio

Show answer
Correct Option: A

If gross profit ratio is $33.33\%$ sales, it is ____________$\%$ on cost.

elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

  1. $33.33\%$

  2. $20\%$

  3. $25\%$

  4. $50\%$

Show answer
Correct Option: D
Explanation:

Assume Sale = $300$ and Gross profit = $33.33\% $ on sales = $100$

Cost + Gross profit = Sales
Cost + $100$ = $300$
Cost = $200$
Now, Gross profit % on Cost = Gross Profit  x $100$ 
                                                      Cost
                                               = [$100/200$ ] x $100$
                                               = $50\%$.                                        

If gross profit ratio is $25\%$ sales, it is __________$\%$ on cost.

elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

  1. $33.33\%$

  2. $20\%$

  3. $25\%$

  4. $50\%$

Show answer
Correct Option: A
Explanation:

Assume Sale = $200$ and Gross profit = $25\% $ on sales = $50$

Cost + Gross profit = Sales
Cost + $50$ = $200$
Cost = $150$
Now, Gross profit % on Cost = Gross Profit  x $100$ 
                                                      Cost
                                               = [$50/150$ ] x $100$
                                               = $33.33\%$.                                      

If gross profit ratio is $50\%$ on cost, it is __________$\%$ on sales.

elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

  1. $33.33\%$

  2. $20\%$

  3. $25\%$

  4. $50\%$

Show answer
Correct Option: A
Explanation:

Assume Cost = $200$ and Gross profit = $50\% $ on cost = $100$

Cost + Gross profit = Sales
$200$ + $100$ = Sales
Sales = $300$
Now, Gross profit % on Sales = Gross Profit  x $100$ 
                                                      Sales
                                               = [$100/300$ ] x $100$
                                               = $33.33\%$.                                    

The stock turnover ratio is a/an _______ ratio.

elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

  1. Insolvency

  2. Activity Ratio

  3. Liquidity

  4. Total Investment

Show answer
Correct Option: B
Explanation:
Stock turnover ratio indicates how efficiently the firm’s investment in inventories is converted to sales and thus depicts the inventory management skills of the organization. It is considered an activity ratio as it measures the efficiency of the company in using its resources. So, the correct option is 'Activity ratio'.

From the following data, calculate Inventory Turnover Ratio:
Total Sales Rs. 5,00,000; Sales Return Rs. 50,000; 
Gross Profit Rs. 90,000; Closing Inventory Rs. 1,00,000; Excess of Closing Inventory over opening inventory Rs. 20,000.

elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

  1. 6 times

  2. 3 times

  3. 4 times

  4. 5 times

Show answer
Correct Option: C
Explanation:
Inventory turnover ratio = Cost of goods sold ( WN 1)
                                          ----------------------------------------
                                               Average inventory (WN 2)
                                          = 3,60,000
                                           -----------------
                                             90,000 
                                         = 4 Times

Working notes:-
1) Cost of goods sold = Gross sales - (Sales return + gross profit)
                                    = 5,00,000 - (50,000 + 90,000)
                                    = 3,60,000.
2) Average Inventory = 1,00,000 + 80,000
                                      -------------------------------
                                                      2
                                    = 90,000. 
Closing inventory is 20,000 more than opening inventory hence opening inventory is 1,00,000 - 20,000 = 80,000.
                                         

Credit Revenue from Operations, i.e.,
Net credit sales for the year - 1,20,000
Debtors - 12,000
Bills Receivable - 8,000
Calculate Trade Receivable or Debtors' Turnover Ratio.

elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

  1. 4 times

  2. 3 times

  3. 6 times

  4. 5 times

Show answer
Correct Option: C
Explanation:
Debtor's turnover ratio =             Credit sales
                                               -------------------------------
                                               Average receivables 
                                    
                                       =         1,20,000
                                                -----------------
                                                    20,000                              
                                       =       6 times.

There is deterioration in the management of working capital of XYZ Ltd. What does it refer to?

elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

  1. That the capital employed has reduced

  2. That the profitability has gone up

  3. That debtors collection period has increased

  4. That sales has decreased

Show answer
Correct Option: C
Explanation:

Debtor collection period is the time that it takes to convert balances from account receivables back into cash flow. This can apply to an individual transaction or to the business's overall transaction history for a period of time. The lower the debtor collection period the more efficient is the company in collecting payment from its customers.