Ratios and Intepretation

20. If a company reported a profit for the year of £90m, share capital of £200m and a share price of £9.00 - what is the price/earnings (P/E) ratio? A. 20 B. 10 C. 45 D. 22   Answer : A

19. If a company reported a profit for the year of £90m, share capital of £200m and a share price of £9.00 - what is the earnings per share (EPS)? A. 20p per share B. 10p per share C. 45p per share D. 22p per share   Answer : C

18. Which of the following statements is correct? A. Shareholders motivated by the prospects of higher future share price growth tend to invest in companies with low dividend cover B. Shareholders motivated by the prospects of higher future share price growth tend to invest in companies with a low P/E ratio C. Shareholders who buy shares for a regular income tend to invest in companies with low dividend cover D. Shareholders who buy shares for a regular income tend to invest in companies with...

17. If dividend per share remained the same but the share price increased, what effect would this have on dividend yield? A. The earnings per share (EPS) component of dividend yield would increase B. Dividend yield would not be effected C. Dividend yield would increase D. Dividend yield would decrease   Answer : D

16. If a company was interested in calculating how long it takes to receive payment from customers, which of the calculations would they make? A. Trade receivables/sales revenue x 365 B. Sales revenue/trade receivables x 365 C. Trade payables/cost of sales x 365 D. Cost of sales/trade payables x 365   Answer : A

15. If a supplier was interested in whether or not they will be paid on time, which of the calculations would they make? A. Trade receivables /sales revenue x 365 B. Sales revenue/trade receivables x 365 C. Trade payables/cost of sales x 365 D. Cost of sales/trade payables x 365   Answer : C

14. Which of the following ratios considers the relationship between inventory and cost of sales? A. Inventory turnover ratio B. Trade payables ratio C. Cost of sales turnover ratio D. Trade receivables ratio   Answer : A

13. Which of the following rations considers the relationship between profit, equity and long-term borrowing? A. Quick ratio B. Current ratio C. Capital gearing ratio D. ROCE   Answer : D

12. Which of the following rations considers the relationship between equity and long-term borrowing? A. Quick ratio B. Current ratio C. Capital gearing ratio D. ROCE   Answer : C

11. Which of the following rations considers the relationship between current assets and current liabilities? A. Quick ratio B. Current ratio C. Capital gearing ratio D. ROCE Answer : B

The following information is from the annual report of Thunderstruck Ltd: Statement of financial position of Thunderstruck Ltd as at 31 December 202xIncome statement extract of Thunderstruck Ltd for the year ended 31 December 202XQuestion 10-aFrom the information provide above, calculate the current ratio a. 1.48:1b. 2.44:1c. 2:1d. 1.77:1Question 10-bFrom the information provide above, calculate the liquidity ratio a. 2.44:1 b. 2:1 c. 1.48:1 d. 1.77:1Question 10-cFrom the information provide...

9. A gearing ratio of above 50% suggests: A. The company is profitable B. The company is over-reliant on borrowing C. The company is financed mostly by equity D. The company is almost bankrupt    Answer : B

8. A high price/earnings (P/E) ratio suggests: A. Shareholders are pessimistic about future growth prospects B. Shareholders are optimistic about future growth prospects C. Earnings per share is high relative to the share price D. Statements B and C are correct   Answer : B

7. The price earnings ratio, dividend cover and dividend yield provide information on: A. Stock market performance B. Liquidity C. Profitability D. Utilization of assets   Answer : A

6. Financial strength/solvency ratios include: A. Return on shareholders funds, asset turnover and gross profit ratio B. Stock turnover ratio, debtor ratio and creditor ratio C. Price earnings ratio, dividend cover and dividend yield D. Current ratio, quick ratio and capital gearing ratio   Answer : D

5. One way to improve return on capital employed (ROCE) is to reduce costs and increase sales TRUE

4. The gearing ratio relates long-term borrowing to equity TRUE

3. The return on capital employed (ROCE) shows how "solvent" a company is FALSE

2. Non-current liabilities are used in the calculation of the current ratio FALSE

1. One way of assessing if debt is too high is to compare it with equity TRUE