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Quiz about Ratios in Accounting
Quiz about Ratios in Accounting

Ratios in Accounting Trivia Quiz


This quiz is a test on ratios that you may need to use if you were an accountant.

A multiple-choice quiz by mick_is_god. Estimated time: 5 mins.
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Author
mick_is_god
Time
5 mins
Type
Multiple Choice
Quiz #
263,783
Updated
Dec 03 21
# Qns
10
Difficulty
Tough
Avg Score
5 / 10
Plays
2120
Last 3 plays: gogetem (7/10), Guest 206 (1/10), Guest 112 (5/10).
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Question 1 of 10
1. First of all, let's look at the current ratio. This can be calculated by current assets/? :1 Hint


Question 2 of 10
2. Next is the acid test ratio. This is exactly the same as the current ratio, except what value should be taken away from the current assets? Hint


Question 3 of 10
3. Now onto stock turnover. This shows how many times a company uses stock over a certain time period. Stock turnover = cost of sales/ ? (Note: stock relates to inventories and is not related to shares). Hint


Question 4 of 10
4. Debtors' collection period (or debtor days) measures how long on average a company's debtors take to pay off their debts to the company. This can be calculated by debtors/? x 365? Hint


Question 5 of 10
5. Asset turnover measures how effectively an asset held by a business can generate sales for the company. Which of these can be used to divide sales turnover by? Hint


Question 6 of 10
6. Now onto gearing. This method analyses the relationship between borrowing money and equity through shares. How is gearing presented? Hint


Question 7 of 10
7. Now onto profitability ratios. What do you divide gross profit by to work out the gross profit margin? Hint


Question 8 of 10
8. Dividend yield is the amount of money that an investor typically gets back through dividends. Which of these is a typical dividend yield for any company? Hint


Question 9 of 10
9. The ROCE equation can be calculated by dividing operating profit with capital employed. What does the R stand for in ROCE? Hint


Question 10 of 10
10. Finally, for the break-even ratio. What do you divide by Contribution per unit to get the final figure? Hint



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quiz
Quiz Answer Key and Fun Facts
1. First of all, let's look at the current ratio. This can be calculated by current assets/? :1

Answer: current liabilities

Current assets are usually larger than the current liabilities in a business, so this ratio is usually over 1. A generally acceptable level for businesses is between 1.5:1 and 2:1. Anything higher is deemed to be a bad use of assets, and anything lower than 1:1 may mean the business faces liquidity problems in the future. Of course, each business has its own methods, supermarkets, for example, can operate at lower current ratio levels.
2. Next is the acid test ratio. This is exactly the same as the current ratio, except what value should be taken away from the current assets?

Answer: stock (inventories)

Stock(inventories) is taken away because this is seen as the least liquid of all of the current assets, as it is more difficult to sell stock to obtain money. The acid test ratio in full is (current assets-stock)/current liabilities :1. Generally, the acceptable level for many businesses is 1:1, although again depending on the sector each company operates in, this will vary.

These two ratios are the liquidity ratios.
3. Now onto stock turnover. This shows how many times a company uses stock over a certain time period. Stock turnover = cost of sales/ ? (Note: stock relates to inventories and is not related to shares).

Answer: Value of stock

Fixed costs, variable costs and total costs all deal with break-even charts rather than stock turnover. Alternatively, the value of stock can be divided by cost of sales, and then multiplied by 365 days to give a value in days for how long a company keeps its stock on average.
4. Debtors' collection period (or debtor days) measures how long on average a company's debtors take to pay off their debts to the company. This can be calculated by debtors/? x 365?

Answer: turnover

Debtor days are difficult for businesses to deal with. If they don't give enough time for debtors to pay them, then debtors may look elsewhere for better deals, but if they give them too much time then the company may experience cash flow problems.
5. Asset turnover measures how effectively an asset held by a business can generate sales for the company. Which of these can be used to divide sales turnover by?

Answer: Both of them

Total assets refer to fixed assets and current assets, whereas net assets refers to fixed assets and current assets minus current liabilities. Increasing asset turnover usually indicates (although not always) that a business' efficiency is increasing. The last three ratios are all deemed to be financial efficiency ratios.
6. Now onto gearing. This method analyses the relationship between borrowing money and equity through shares. How is gearing presented?

Answer: Percentage

Gearing in a business is calculated by dividing long term borrowing by equity and multiplying the result by 100%. Again, there are benefits to being highly geared (over 100%) as a business, and being very low geared (less than 100%). Highly geared companies are usually operating with a greater risk factor than low geared businesses. Alternatively, gearing can be worked out by dividing fixed cost capital over long term capital.
7. Now onto profitability ratios. What do you divide gross profit by to work out the gross profit margin?

Answer: Sales Turnover

The difference between gross profit and net profit is that gross profit only looks at profits and revenue made before taxation and interest payments. Net profit takes these into account.
8. Dividend yield is the amount of money that an investor typically gets back through dividends. Which of these is a typical dividend yield for any company?

Answer: 3%

Most investors would get between 1% and 5% as a return on their investment. A 300% or 100% dividend is ridiculously high, and the 0.00000003% is ridiculously low. Of course, it is not inconceivable that this would happen, but it is very unlikely.
9. The ROCE equation can be calculated by dividing operating profit with capital employed. What does the R stand for in ROCE?

Answer: Return

ROCE stand for return on capital employed. This ratio is used by businesses to try and calculate how efficiently its assets are gaining profit for the company. It can also be called ROACE, which is Return on Average Capital Employed.
10. Finally, for the break-even ratio. What do you divide by Contribution per unit to get the final figure?

Answer: Fixed costs

Contribution per unit is defined by subtracting the variable cost for each unit from the selling price for each unit. It is considered a good method, but doesn't take into account discounted products, and it can only be used for one product.
Source: Author mick_is_god

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