Financial Statements Analysis and Ratio Analysis MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Financial Statements Analysis and Ratio Analysis, a fundamental topic in the field of IC 89 Management Accounting. Whether you're preparing for competitive exams, honing your problem-solving skills, or simply looking to enhance your abilities in this field, our Financial Statements Analysis and Ratio Analysis MCQs are designed to help you grasp the core concepts and excel in solving problems.

In this section, you'll find a wide range of Financial Statements Analysis and Ratio Analysis mcq questions that explore various aspects of Financial Statements Analysis and Ratio Analysis problems. Each MCQ is crafted to challenge your understanding of Financial Statements Analysis and Ratio Analysis principles, enabling you to refine your problem-solving techniques. Whether you're a student aiming to ace IC 89 Management Accounting tests, a job seeker preparing for interviews, or someone simply interested in sharpening their skills, our Financial Statements Analysis and Ratio Analysis MCQs are your pathway to success in mastering this essential IC 89 Management Accounting topic.

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Financial Statements Analysis and Ratio Analysis MCQs | Page 2 of 10

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Q11.
What do liquidity ratios indicate in financial management?

a.

The firm's ability to meet long-term obligations

b.

The firm's ability to meet current or short-term obligations

c.

The firm's profitability in the long run

d.

The firm's investment strategies

Discuss
Answer: (b).The firm's ability to meet current or short-term obligations Explanation:Liquidity ratios indicate the ability of the firm to meet its current or short-term obligations as and when they become due for payment.
Q12.
Which liquidity ratio measures the ability of the firm to meet its current liabilities and is an indicator of short-term solvency?

a.

Acid Test Ratio

b.

Cash Ratio

c.

Quick Ratio

d.

Current Ratio

Discuss
Answer: (d).Current Ratio Explanation:The Current Ratio measures the ability of the firm to meet its current liabilities, and a higher current ratio indicates greater short-term solvency.
Q13.
Among the listed liquidity ratios, which is considered the most stringent measure of liquidity and solvency?

a.

Quick Ratio

b.

Cash Ratio

c.

Current Ratio

d.

Acid Test Ratio

Discuss
Answer: (b).Cash Ratio Explanation:The Cash Ratio is considered the most stringent measure of liquidity and solvency among the listed ratios.
Q14.
What does a high current ratio indicate, and what might a too high ratio suggest?

a.

Indicates inefficiency in fund management; suggests optimum return

b.

Indicates optimum return; suggests inefficiency in fund management

c.

Indicates efficient fund management; suggests the firm's inability to meet current obligations

d.

Indicates the firm's inability to meet current obligations; suggests efficient fund management

Discuss
Answer: (c).Indicates efficient fund management; suggests the firm's inability to meet current obligations Explanation:A high current ratio indicates efficient fund management, while a too high ratio may suggest the firm's inability to meet current obligations.
Q15.
How is the Quick Ratio computed in financial management?

a.

(Cash and Bank Balances + Current Liabilities) / Current Assets

b.

Current Assets / Current Liabilities

c.

Current Assets - Stock / Current Liabilities

d.

Current Assets / (Current Liabilities + Stock)

Discuss
Answer: (c).Current Assets - Stock / Current Liabilities Explanation:The Quick Ratio is computed as (Current Assets - Stock) / Current Liabilities in the process of assessing liquidity.
Q16.
What is the ultimate objective of every firm, including insurance companies?

a.

Cost reduction

b.

Efficiency improvement

c.

Growth with profitability

d.

Market dominance

Discuss
Answer: (c).Growth with profitability Explanation:The ultimate objective of every firm, including insurance companies, is growth with profitability.
Q17.
What does the Gross Profit Ratio express in financial management?

a.

Administrative expenses

b.

Overall profitability

c.

Return on investments of the owners

d.

Labour productivity

Discuss
Answer: (b).Overall profitability Explanation:The Gross Profit Ratio expresses overall profitability and is expected to cover not only administrative expenses and overheads but also the return on investments of the owners.
Q18.
What does the fluctuation in Gross Profit Ratio indicate?

a.

Change in market conditions

b.

Change in selling price or cost of goods sold

c.

Change in labor productivity

d.

Change in overall profitability

Discuss
Answer: (b).Change in selling price or cost of goods sold Explanation:Fluctuation in Gross Profit Ratio is the result of a change either in selling price or the cost of goods sold.
Q19.
In the insurance sector, what is the equivalent to the Gross Profit Ratio, and why is it important?

a.

Operating Profit Ratio; for risk-selection and risk-analysis

b.

Net Profit Ratio; for risk-acceptance and risk-rating

c.

Underwriting Result Ratio; for risk-selection, risk-analysis, risk-acceptance, and risk-rating

d.

Return on Investment (ROI); for risk-management and underwriting policy

Discuss
Answer: (c).Underwriting Result Ratio; for risk-selection, risk-analysis, risk-acceptance, and risk-rating Explanation:In the insurance sector, the equivalent to the Gross Profit Ratio is the Underwriting Result Ratio, which is important for risk-selection, risk-analysis, risk-acceptance, and risk-rating.
Q20.
Why is the analysis of the Gross Profit Ratio helpful for management in financial management?

a.

To control external factors

b.

To control the rise or fall in selling price

c.

To control market conditions

d.

To maintain the ratio at a reasonably high level by controlling the cost of goods sold

Discuss
Answer: (d).To maintain the ratio at a reasonably high level by controlling the cost of goods sold Explanation:The analysis of the Gross Profit Ratio is helpful for management to maintain the ratio at a reasonably high level by controlling the cost of goods sold.
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