Analysis of Financial Statements quiz

Comparative statements are an example of:

In a common size Statement of Profit and Loss, each item is expressed as a percentage of:

Quick assets exclude:

Debt-equity ratio is a:

If current assets are Rs 3,00,000 and current liabilities are Rs 1,20,000, the current ratio is:

Inventory turnover ratio is calculated as:

Which transaction will improve a current ratio of 2:1?

Operating ratio is equal to:

Interest coverage ratio indicates:

Proprietary ratio is calculated as:

State any two objectives of preparing common size statements. (2 marks)

Name the major headings under which items appear on the equity and liabilities side of a company's Balance Sheet as per Schedule III. (2 marks)

Why is the quick ratio considered a better test of liquidity than the current ratio? (2 marks)

What does a high debt-equity ratio indicate for the company's long-term creditors? (2 marks)

Distinguish between trade receivables turnover ratio and trade payables turnover ratio. (2 marks)

Give two reasons why inter-firm comparison using ratios may be misleading. (2 marks)

What is meant by capital employed? Give its formula from the liabilities side. (2 marks)

State the formula for the working capital turnover ratio and explain what a high value indicates. (2 marks)

Explain why the analysis of financial statements is of interest to (i) employees and (ii) the government. (2 marks)

How does window dressing reduce the reliability of ratio analysis? (2 marks)

Revenue from operations is Rs 8,00,000, gross profit is 25% on revenue, operating expenses are Rs 80,000 and non-operating income is Rs 20,000. Calculate the gross profit, operating ratio and net profit ratio (ignore tax). (3 marks)

Current ratio is 3:1, working capital is Rs 2,40,000 and inventory is Rs 1,20,000. Calculate current assets, current liabilities and quick ratio (assume no prepaid expenses). (3 marks)

Cost of revenue from operations is Rs 4,80,000, inventory turnover ratio is 6 times and closing inventory is Rs 10,000 more than opening inventory. Calculate the opening and closing inventory. (3 marks)

Total debts are Rs 6,00,000, of which current liabilities are Rs 2,00,000. Shareholders' funds are Rs 8,00,000. Calculate the debt-equity ratio and the total assets to debt ratio. (3 marks)

Prepare a common size statement for these items: revenue from operations Rs 5,00,000, cost of materials consumed Rs 3,00,000, employee benefit expenses Rs 50,000, other expenses Rs 25,000. Calculate profit before tax and its percentage of revenue. (3 marks)

Read the passage and answer the questions. Sunrise Foods Ltd showed revenue from operations of Rs 20,00,000 in 2024-25 and Rs 25,00,000 in 2025-26. Cost of revenue rose from Rs 14,00,000 to Rs 18,50,000. Other expenses rose from Rs 2,00,000 to Rs 2,20,000. (i) Calculate the absolute and percentage change in revenue from operations. (ii) Calculate the gross profit for both years and the percentage change in gross profit. (iii) Comment on whether the company's profitability on sales has improved. (5 marks)

Read the passage and answer the questions. A bank is considering a working capital loan to Kaveri Traders. The Balance Sheet shows inventories Rs 3,00,000, trade receivables Rs 1,20,000, cash Rs 30,000, prepaid expenses Rs 10,000, trade payables Rs 1,80,000 and outstanding expenses Rs 20,000. (i) Calculate the current ratio. (ii) Calculate the quick ratio. (iii) Advise the bank on the firm's short-term solvency, giving reasons. (5 marks)

Read the passage and answer the questions. Neptune Ltd has equity share capital Rs 10,00,000, general reserve Rs 2,00,000, surplus in Statement of Profit and Loss Rs 3,00,000, 12% debentures Rs 5,00,000 and current liabilities Rs 5,00,000. Profit before interest and tax is Rs 3,00,000. (i) Calculate the debt-equity ratio. (ii) Calculate the interest coverage ratio. (iii) Calculate the return on investment. (5 marks)

Read the passage and answer the questions. Orbit Electronics sells mostly on credit. Its credit revenue from operations was Rs 7,30,000, and average trade receivables were Rs 1,46,000. The industry average collection period is 45 days. Credit purchases were Rs 5,40,000 and average trade payables Rs 90,000. (i) Calculate the trade receivables turnover ratio and average collection period. (ii) Calculate the trade payables turnover ratio and average payment period (take 360 days). (iii) Comment on the firm's credit management compared with the industry. (5 marks)

Read the passage and answer the questions. An analyst compared the ratios of a steel company over five years and found that its current ratio fell from 2.1 to 1.2 while inventory turnover rose from 4 to 7 times. Management claims that the business has become more efficient, while a creditor fears a liquidity crisis. (i) What does the fall in the current ratio indicate? (ii) What does the rise in inventory turnover indicate? (iii) Whose view would you support? Justify with reference to the limitations of ratio analysis. (5 marks)

Explain the four tools of financial analysis with one use of each. Draw a chart classifying the tools as horizontal or vertical, and state three limitations of financial analysis. (6 marks)

Prepare a comparative Balance Sheet (in prose line form, giving the 2025, 2026, absolute change and percentage change for each item) from: share capital Rs 5,00,000 and Rs 6,00,000; reserves Rs 1,00,000 and Rs 1,50,000; long-term borrowings Rs 2,00,000 and Rs 1,50,000; trade payables Rs 1,00,000 and Rs 1,50,000; fixed assets Rs 6,00,000 and Rs 7,00,000; inventories Rs 1,50,000 and Rs 1,80,000; cash Rs 1,50,000 and Rs 1,70,000. Interpret two major changes. (6 marks)

Explain the meaning, formula and significance of any three profitability ratios. Calculate each from: revenue from operations Rs 12,00,000, cost of revenue Rs 8,40,000, operating expenses Rs 1,20,000, net profit after tax Rs 1,44,000. Draw a chart linking these ratios. (6 marks)

Explain the meaning and significance of any three solvency ratios. Draw a chart showing their formulae and the ideal or desirable direction for each from the creditors' viewpoint. (6 marks)

Explain the activity ratios: inventory turnover, trade receivables turnover, trade payables turnover and working capital turnover, with formulae. Draw a flowchart of the operating cycle (cash -> raw material -> finished goods -> receivables -> cash) and show which ratio measures each stage. (6 marks)