Analysis of Financial Statements

  1. Which ratio is considered as safe margin of solvency?
    1. Liquid ratio
    2. Quick ratio
    3. Current ratio
    4. None of the above
  2. The ideal level of current ratio is 
    1. 4:3
    2. 2:1
    3. Both a and b
    4. None of the above
  3. Current ratio is stated as a crude ratio because
    1. It measures only the quantity of current assets
    2. It measures only the quality of current assets
    3. Both a and b
    4. Offerings dimension
  4. Liquid ratio is also known as    a) Quick ratio    b) Acid test ratio    c) Working capital ratio   d) Stock turnover ratio 
    1. A and B 
    2. A and C
    3. B and C
    4. C and D
  5. Determine a firm's total asset turnover if its net profit margin is 5 percent, total assets are 80 lakh, and ROI is 8 percent.
    1. 1.60
    2. 2.05
    3. 2.50
    4. 4.00
  6. A firm has an 8 percent return on total assets of 300,000 and a net profit margin of 5 percent. What are its sales?
    1. 37,50,000
    2. 4,80,000
    3. 3,00,000
    4. 15,00,000
  7. Which of the following would NOT improve the current ratio?
    1. Borrow short term to finance additional fixed assets.
    2. Issue long-term debt to buy inventory.
    3. Sell common stock to reduce current liabilities.
    4. Sell fixed assets to reduce accounts payable.
  8. The gross profit margin is unchanged, but the net profit margin declined over the same period. This could have happened if
    1. cost of goods sold increased relative to sales.
    2. sales increased relative to expenses.
    3. tax rate has been increased.
    4. dividends were decreased.
  9. A firm has a debt-to-equity ratio of 1.6 compared with the industry average of 1.4. This means that the company
    1. will not experience any difficulty with its creditors.
    2. has less liquidity than other firms in the industry.
    3. will be viewed as having high creditworthiness.
    4. has greater than average financial risk when compared to other firms in its industry.
  10. A firm had sales last year of 26.50 crore, including cash sales of 2.5 crore. If its average collection period was 36 days, its ending accounts receivable balance is closest to        . (Assume a 365-day year.)
    1. 2.61 crore
    2. 2.37 crore
    3. 0.74 crore
    4. 1.87 crore
  11. A company can improve (lower) its debt-to-total assets ratio by doing which of the following?
    1. Borrow more.
    2. Shift short-term to long-term debt.
    3. Shift long-term to short-term debt.
    4. Sell common stock.
  12. Which of the following statements (in general) is correct?
    1. A low receivables turnover is desirable.
    2. The lower the total debt-to-equity ratio, the lower the financial risk for a firm.
    3. An increase in net profit margin with no change in sales or assets means a poor ROI.
    4. The higher the tax rate for a firm, the lower the interest coverage ratio.
  13. A firm's debt-to-total assets (D/TA) ratio is 0.4. What is its debt-to-equity (D/E) ratio?
    1. 0.2
    2. 0.6
    3. 0.667
    4. 0.333
  14. On an accounting statement of cash flows an "increase(decrease) in cash and cash equivalents" appears as
    1. a cash flow from operating activities.
    2. a cash flow from investing activities.
    3. a cash flow from financing activities.
    4. none of the above.
  15. Uses of funds include a (an):
    1. decrease in cash.
    2. increase in any liability.
    3. increase in fixed assets.
    4. tax refund.
  16. Which of the following would be included in a cash budget?
    1. depreciation charges.
    2. dividends.
    3. goodwill.
    4. patent amortization.
  17. An examination of the sources and uses of funds statement is part of:
    1. a forecasting technique.
    2. a funds flow analysis.
    3. a ratio analysis.
    4. calculations for preparing the balance sheet.
  18. Which of the following is NOT a cash outflow for the firm?
    1. depreciation.
    2. dividends.
    3. interest payments.
    4. taxes.
  19. Which of the following would be considered a use of funds?
    1. a decrease in accounts receivable.
    2. a decrease in cash.
    3. an increase in account payable.
    4. an increase in cash.
  20.  What are the earnings per share (EPS) for a company that earned Rs. 100,000 last year in after-tax profits, has 200,000 common shares outstanding and Rs. 1.2 million in retained earning at the year end?
    1. Rs. 100,000
    2. Rs. 6.00
    3. Rs. 0.50
    4. Rs. 6.50


  1. MCQ's are a very good and interesting way of learning. It increases our logical and reasoning ability also it is very helpful to make our mind sharp. I have seen all of your articles, they are full of good study material and with the help of your articles students can easily revise their financing chapters of economics. Thanks again for this beneficial information.


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