Deck 9: Understanding Financial Reports: Using Accounting Ratios

Question 1

Dilworth and Best Limited's financial statements for the year ended 31 March 20X6 included the following information: Extracts from the statement of financial position:
What was the return on total capital employed (to one decimal place)?

A)17.6%
B)12.4%
C)22.2%
D)61.9%

Answer 1

22.2%

Question 2

Extracts from the financial statements of Snowdrop Products Limited for the year ended 31 January 20X2 are as follows: What is the gearing ratio (worked out as debt/debt + equity) (to one decimal place)?

A)62.4%
B)64.2%
C)89.4%
D)69.5%

Answer 2

64.2%

Question 3

Spacek Pavilions Limited's financial information for the year ended 31 March 20X9 included the following: Dividends paid in the year were £120 000.
What was the company's dividend cover (to one decimal place)?

A)4.2
B)2.9
C)14.8
D)5.7

Answer 3

2.9

Question 4

Which one of the following statements is correct? The non-current assets turnover ratio is calculated as:

A)Revenue Non-current assets at cost
B)Non-current assets Revenue
C)Revenue Non-current assets at carrying amount
D)Non-current assets at cost Revenue

Question 5

The following information is available for Davey Pilbrick Products for the 20X2 financial year: What is the trade payables' turnover period in days (to one decimal place)?

A)50.9 days
B)39.8 days
C)47.2 days
D)7.7 days

Question 6

Which one of the following statements is correct? Inventory turnover ratio in months is calculated as:

A)Average inventory x 12 Cost of sales
B)Cost of sales x 12 Average inventory
C)Revenue x 12 Average inventory
D)Operating profit x 12 Average inventory

Question 7

Chalfont Burgess Limited's financial statements for the year ended 31 March 20X8 included the following information: What was the company's non-current asset turnover ratio for the year (to two decimal places)?

A)0.52
B)0.87
C)1.92
D)1.15

Question 8

The following information is available for Delaney's Fabrics for the 20X9 financial year: How many times, on average, has inventory turned over in the year (to one decimal place)?

A)43.3 times
B)8.4 times
C)8.8 times
D)9.8 times

Question 9

Which one of the following statements is correct? The quick (or acid test) ratio is the ratio of:

A)Current assets to current liabilities.
B)Current assets less inventory to current liabilities less bank overdraft.
C)Current assets less cash to current liabilities less bank overdraft.
D)Current assets less inventory to current liabilities.

Question 10

The following information is available for David, a sole trader, for the 20X4 financial year: What was the trade payables' turnover period in days (to one decimal place)?

A)47.2 days
B)12.7 days
C)46.5 days
D)33.5 days

Question 11

The following information is available for Milford Spencer Limited for the 20X7 financial year: How many times, on average, has inventory turned over in the year (to one decimal place)?

A)8.3 times
B)7.7 times
C)9.8 times
D)7.2 times

Question 12

The following information is available for Pearcey Delaware Limited for the 20X6 financial year: What is the company's inventory turnover ratio in days (to one decimal place)?

A)39.7 days
B)43.8 days
C)34.5 days
D)37.5 days

Question 13

Which one of the following statements is correct? Pre-tax return on shareholders' equity is calculated as:

A)Operating profit as a percentage of share capital plus retained earnings.
B)Profit after taxation as a percentage of share capital plus retained earnings.
C)Profit before taxation as a percentage of share capital plus retained earnings.
D)Operating profit as a percentage of the total of share capital plus retained earnings.

Question 14

Extracts from the financial statements of Downs and Wellbeck Limited for the year ended 31 December 20X3 were as follows: Which one of the following statements is correct?

A)The quick ratio has declined but the current ratio has improved between 20X2 and 20X3.
B)Both the quick and current ratios have improved between 20X2 and 20X3.
C)Both the quick and current ratios have declined between 20X2 and 20X3.
D)The quick ratio has improved but the current ratio has declined between 20X2 and 20X3.

Question 15

The directors of Brasenose Forceps Limited have taken steps during the 20X7 financial year to improve the company's quick and current ratios.Their target for the quick ratio was 0.80 and for the current ratio it was 1.75. Extracts from the company's statement of financial position at the 20X7 year end were as follows:
Which one of the following statements is correct?

A)The actual quick ratio is better than target, but the actual current ratio is worse than target.
B)The actual quick ratio is worse than target, but the actual current ratio is better than target.
C)Both the actual quick and current ratios are better than target.
D)Both the actual quick and current ratios are worse than target.

Question 16

Which one of the following statements is correct? Dividend cover is calculated as:

A)Dividends as a percentage of share capital.
B)Profit after taxation divided by dividends.
C)Operating profit divided by dividends.
D)Dividends as a percentage of shareholders' equity.

Question 17

The following information is available for Robin and Sparrow Limited for the 20X6 financial year: What was the trade payables' turnover period in days (to one decimal place)?

A)51.2 days
B)48.4 days
C)53.9 days
D)40.1 days

Question 18

Tilbury Towers Limited's financial information for the year ended 28 February 20X4 included the following: What was the company's trade receivables collection period in days (to two decimal places)?

A)13.9 days
B)65.5 days
C)43.7 days
D)26.2 days

Question 19

Belair Forton Limited recorded revenue of £2 266 380 in the 20X1 financial year, of which 47% was on credit.The average trade receivables figure over that period was £152 630. What was the trade receivables collection period in months (to one decimal place)?

A)0.81 months
B)0.38 months
C)1.72 months
D)1.52 months

Question 20

Snodworth Limited's financial statements for the year ended 31 August 20X4 included the following information: What was interest cover (to two decimal places)?

A)3.84
B)5.60
C)4.84
D)2.71

Question 21

Bellworth Limited has ordinary share capital of 6 000 000 shares of 25p each.Its retained earnings brought forward at 1 January 20X4 totalled £3 420 000 and the company made a loss of £300 000 in the year ended 31 January 20X4.The company's long-term borrowings remained the same throughout the 20X4 financial year at £1 800 000. What was the company's gearing ratio (calculated as debt as a percentage of equity) at 31 December 20X4 (to one decimal place)?

A)19.7%
B)18.5%
C)39.0%
D)34.5%

Question 22

Elfrida plc has share capital of £7 500 000 in 50p ordinary shares.In the year ended 31 December 20X1 Elfrida plc paid a total of £675 000 in dividends to its ordinary shareholders. What was the dividend per share for the year ended 31 December 20X1.

A)9p
B)4.5p
C)18p
D)50p

Question 23

Bence and Bentham plc's statement of profit or loss for the year ended 30 April 20X8 included the following information: The total dividend paid during the financial year was £3 000 000.The number of shares in issue throughout the year was 30 million £1 ordinary shares.The company's price/earnings ratio was 12.8.
What was the price of one ordinary share on 30 April 20X8 in pence (to one decimal place)?

A)812.5p
B)44.7p
C)571.8p
D)100p

Question 24

Brilliant and Diamond plc is a listed company with a market capitalization at 31 December 20X6 of £9 996 000.The company has ordinary share capital of 1.2 million ordinary shares and preference share capital of 0.3 million.Profit before tax was £583 000 and profit after tax (after deduction of preference dividend but before ordinary dividend) was £402 000.Ordinary dividends paid in the year were £120 000. What was the company's price/earnings ratio at 31 December 20X6 (to one decimal place)?

A)24.9
B)17.1
C)19.9
D)13.7

Question 25

Which one of the following statements is correct? Earnings per share is calculated as:

A)Profit after tax and dividend divided by the number of ordinary shares
B)Profit after tax but before dividend divided by the number of ordinary shares plus the number of preference shares
C)Profit after tax but before dividend divided by the number of ordinary shares
D)Profit after tax and dividend divided by the number of ordinary shares and preference shares in issue

Question 26

Ambrose Atwater plc's results for the year ended 31 August 20X2 included the following information: profit after tax was £6 800 000, tax was £3 200 000 and total dividends paid were £2 000 000.The price of one ordinary share in the company on 31 August 20X2 was £2.92.The number of ordinary shares in issue throughout the financial year ended on 31 August 20X2 was 20 million. What was the company's price/earnings ratio at 31 August 20X2 (to one decimal place)?

A)8.6
B)5.8
C)11.6
D)29.2

Question 27

Market capitalization is calculated by which one of the following formulae?

A)Number of ordinary shares x earnings per share
B)Earnings per share x number of ordinary shares
C)Price of one share x number of ordinary shares
D)Price of one share x earnings per share

Question 28

Bull Smythe plc is a listed company.Extracts from its financial statements for the 20X4 financial year are as follows: Dividends paid in the year were £12 000 000.During the 20X4 financial year the company's share capital was180 million shares of £1 each.
What was the company's earnings per share in pence for the 20X4 financial year (to one decimal place)?

A)24.8p
B)43.3p
C)31.5p
D)50.0p

Question 29

Swale and Fraser plc had a P/E ratio of 16.8 at 31 December 20X9.The company's ordinary share capital was 9.3 million £1 ordinary shares.Earnings per share for the financial year ended 31 December 20X9 was 30.2p. What was the company's market capitalization at 31 December 20X9 (to the nearest £000)?

A)Insufficient information available to calculate market capitalization
B)£156 240 000
C)£47 188 000
D)£50 740 000

Question 30

Allardyce Smart plc is a listed company.Extracts from its financial statements for the year ended 30 April 20X2 are as follows: During the year the company paid dividends of £1 200 000 to its shareholders.
During the year ended 30 April 20X2 the company had share capital of 20 million £1 ordinary shares.What was the company's earnings per share in pence for the year ended 30 April 20X2 (to one decimal place)?

A)41.1p
B)27.1p
C)21.1p
D)52.2p

Question 31

A sole trader's cost of sales for the 20X3 financial year was £580 220.Cost of sales increased by 3% in the 20X4 financial year.Opening inventory at the beginning of the 20X4 financial year was £90 220.The inventory turnover figure for 20X4 in days, calculated using the average of opening and closing inventory, was 56.2 days. What was the closing inventory figure at 20X4 year end (to the nearest £)?

A)£92 927
B)£93 816
C)£89 338
D)£88 456

Question 32

Zeela Limited has 100 000 £1 ordinary shares, and £50 000 in 10% preference shares.During its financial year ended 31 March 20X7 the company paid its preference dividend and an ordinary dividend of £2300.What was the company's dividend per ordinary share for the year ended 31 March 20X7?

A)4.9p
B)10p
C)2.3p
D)7.3p

Question 33

The following figures are extracted from the financial statements of Brindle Bucket Limited at 31 March 20X8: The budgeted inventory turnover period in days for the company for the financial year ended 31 March 20X8 was 59.3 days.Trade payables turnover period in days was budgeted at 84.1 days.
Which one of the following statements is correct?

A)Both ratios calculated on actual figures were worse than budgeted.
B)The inventory turnover ratio calculated on actual figures was better than budgeted but the trade payables turnover ratio was worse.
C)Both ratios calculated on actual figures were better than budgeted.
D)The inventory turnover ratio calculated on actual figures was worse than budgeted but the trade payables turnover ratio was better.

Question 34

Which one of the following statements is correct? Interest cover is calculated as:

A)Interest as a percentage of long-term loans
B)Interest as a percentage of short-term loans
C)Profit before interest and tax divided by interest payable
D)Profit before tax divided by interest payable

Question 35

Timoleon plc is a listed company.Extracts from its financial statements for the year ended 31 August 20X4 are as follows: During the year, the company paid £1 200 million in dividends.
What was the company's dividend cover for the year ended 31 December 20X2 (to two decimal places)?

A)26.92
B)6.85
C)4.52
D)4.70

Question 36

A sole trader's revenue for the 20X6 financial year was £686 333.Revenue increased by 8% in the 20X7 financial year.In both years, revenue on credit accounted for 75% of total revenue.The trade receivables turnover ratio for 20X7, calculated using the closing trade receivables figure, was 38.6 days. What was the trade receivables figure at the 20X7 year end (to the nearest £)?

A)£78 389
B)£58 791
C)£54 437
D)£63 494

Question 37

Which one of the following statements about gearing is correct?

A)Investment in a low geared company is usually seen as relatively risky for ordinary shareholders.
B)An increase in a company's level of gearing invariably means that returns to shareholders are reduced.
C)A high level of gearing in a company gives rise to a high interest cover ratio.
D)Returns to shareholders in a highly geared company are likely to be more volatile than in a low geared company.

Question 38

Paura and Fear plc is a listed company.Extracts from its financial statements for the year ended 31 December 20X2 are as follows: During the year the company paid a dividend of £4 000 000 to its shareholders.
What was the company's dividend cover for the year ended 31 December 20X2 (to two decimal places)?

A)3.30
B)2.03
C)6.70
D)2.88

Question 39

Shelbyville Components plc is a listed company.Extracts from its financial statements for the year ended 31 March 20X5 are as follows: During the year the company paid dividends of £4 000 000 to its shareholders.
The company's share capital throughout the financial year was 14.4 million ordinary shares of £1 nominal value.
What was the company's earnings per share in pence for the year ended 31 March 20X5 (to one decimal place)?

A)28.6p
B)27.8p
C)56.4p
D)80.0p