Financial statement analysis and ratios quiz: O-Level Principles of Accounts (SEAB/Cambridge 7087) quiz

Trading profitability, as gross profit divided by sales

How quickly customers pay

Whether the business can pay short-term debts

How many times inventory is sold

$40\%$

$25\%$

$4\%$

$75\%$

Current liabilities divided by current assets

Current assets minus inventory, divided by current liabilities

Current assets divided by current liabilities

Profit divided by capital

$0.5:1$

$1.5:1$

$45{,}000$

$2:1$

$1.25:1$

$2:1$

$0.75:1$

$1.1:1$

Because inventory is not a current asset

Because inventory is the least liquid current asset and may not be quickly converted to cash

Because inventory is always worthless

Because inventory is a liability

Sales divided by current liabilities

Trade receivables divided by sales

Cost of sales divided by average inventory

Profit divided by capital

Customers are paying faster

Profit has increased

The business has more inventory

Customers are taking longer to pay, which may strain cash flow

$20\%$

$5\%$

$50\%$

$2\%$

Because the calculation is optional

Because a ratio is meaningful only when compared with a prior period, another business or a benchmark

Because all ratios mean the same thing

Because a higher ratio is always better in every case

Ratios are always perfectly accurate

Ratios remove the need for financial statements

Ratios use historical figures and ignore non-financial factors

Ratios cannot be compared between years

Trading profitability has improved

The business has more cash

Liquidity has improved

Trading profitability has fallen, perhaps from lower selling prices or higher cost of sales