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.

Note: Each of the following question comes with multiple answer choices. Select the most appropriate option and test your understanding of Financial Statements Analysis and Ratio Analysis. You can click on an option to test your knowledge before viewing the solution for a MCQ. Happy learning!

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Financial Statements Analysis and Ratio Analysis MCQs | Page 9 of 10

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Q81.
What provides the basis for the solvency of a business entity?

a.

Short-term sources of funds

b.

Long-term sources of funds and their uses

c.

Current liabilities

d.

Profitability ratios

Discuss
Answer: (b).Long-term sources of funds and their uses Explanation:Long-term sources of funds and their uses provide the basis for the solvency of a business entity.
Q82.
Which of the following is NOT a major solvency ratio?

a.

Debt-Equity Ratio

b.

Capital Gearing Ratio

c.

Return on Investment

d.

Fixed Assets Ratio

Discuss
Answer: (c).Return on Investment Explanation:Return on Investment is not a major solvency ratio.
Q83.
What is the primary purpose of maintaining the required solvency margin in insurance companies?

a.

Generating profits

b.

Protecting and securing investments and interests

c.

Increasing market share

d.

Meeting short-term obligations

Discuss
Answer: (b).Protecting and securing investments and interests Explanation:The primary purpose of maintaining the required solvency margin is to protect and secure investments and interests.
Q84.
How is solvency analysis in non-life insurance companies described?

a.

A quantitative study of financial statements

b.

A comparative study between Available Solvency Margin and Required Solvency Margin

c.

An analysis of liquidity ratios

d.

An evaluation of profitability ratios

Discuss
Answer: (b).A comparative study between Available Solvency Margin and Required Solvency Margin Explanation:Solvency analysis in non-life insurance companies is described as a comparative study between Available Solvency Margin and Required Solvency Margin.
Q85.
For which type of companies are Market Test Ratios mostly used?

a.

Private companies

b.

Non-profit organizations

c.

Listed companies or those whose stocks and debentures are traded in stock exchanges

d.

Government agencies

Discuss
Answer: (c).Listed companies or those whose stocks and debentures are traded in stock exchanges Explanation:Market Test Ratios are mostly used for listed companies or those whose stocks and debentures are traded in stock exchanges.
Q86.
Corporate financial management uses financial statement analysis for which of the following purposes?

a.

Strategic decision making

b.

Financial risk analysis

c.

Financial planning

d.

All of the above

Discuss
Answer: (d).All of the above Explanation:Corporate financial management uses financial statement analysis for various purposes. Financial statement analysis helps in making strategic decisions related to the overall direction and goals of the organization. It is used to assess and manage financial risks associated with investment decisions, capital budgeting, working capital planning, cash management, and budgetary control. Financial statement analysis plays a crucial role in financial planning, including strategic planning, functional policies, structural plans, and operational plans to achieve organizational goals.
Q87.
_________ indicates the ability of the firm to meet its current or short-term obligations as and when they become due for payment.

a.

Liquidity ratio

b.

Profitability ratio

c.

Activity ratio

d.

Market test ratio

Discuss
Answer: (a).Liquidity ratio Explanation:Liquidity ratio indicates the ability of the firm to meet its current or short-term obligations as and when they become due for payment. Liquidity ratios focus on the company's ability to cover its short-term liabilities with its short-term assets.
Q88.
Which of the following is a profitability ratio?

a.

Market test ratio

b.

Operating ratio

c.

Acid test ratio

d.

Cash ratio

Discuss
Answer: (b).Operating ratio Explanation:Operating ratio is a profitability ratio. It calculates the efficiency of a company's operating activities by comparing operating expenses to net sales.
Q89.
_____________________ ratios measure the effectiveness and efficacy of the employment of the resources of the business.

a.

Liquidity ratio

b.

Profitability ratio

c.

Activity ratio

d.

Market test ratio

Discuss
Answer: (c).Activity ratio Explanation:Activity ratios, also known as turnover ratios, measure the effectiveness and efficacy of the employment of the resources of the business. These ratios provide insights into how efficiently a company is utilizing its assets to generate sales or revenue.
Q90.
How is propriety ratio calculated?

a.

Debts / Equity Fund

b.

Shareholders' Fund / Total Assets

c.

Fixed Assets /Long Term Funds

d.

PBIT / Interest Charges

Discuss
Answer: (b).Shareholders' Fund / Total Assets Explanation:The propriety ratio, also known as equity ratio or equity to total assets ratio, is calculated using the formula: Proprietary Ratio=Shareholders Fund / Total Assets.
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