Cambridge IGCSE · Business Studies (0450)

Analysis of accounts: Practice Questions

5 multiple-choice questions marked as you go, and 3 written questions with worked solutions. All on Analysis of accounts.

8 questions18 marksFree, no account

Question 1

1 mark

Which of the following financial ratios is the most reliable measure of an enterprise's ability to pay its short-term debts immediately without relying on the sale of stock?

Question 2

1 mark

The financial accounts of a clothing manufacturer show that the Gross Profit Margin remained constant at \(40\%\) for two years, but the Profit Margin fell from \(20\%\) to \(12\%\). Which of the following is the most likely cause?

Question 3

1 mark

An enterprise currently has a current ratio of \(2.0:1\) and an acid test ratio of \(1.0:1\). If the enterprise purchases additional inventory on credit, what will be the immediate impact on these ratios?

Question 4

1 mark

When using financial ratios to compare the performance of two different enterprises in the same industry, which of the following represents a major limitation of the analysis?

Question 5

1 mark

The current ratio of a retail business has changed from \(2.4:1\) to \(1.5:1\) over the last year. What does this change most likely indicate?

Question 6

3 marks

Explain the importance of the Return on Capital Employed (ROCE) ratio to a potential investor interested in a new enterprise.

Write your answer out first, then check it against the worked solution.

Question 7

5 marks

Evaluate the impact on an enterprise's liquidity if it decides to pay all of its Trade Payables immediately using its entire cash balance.

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Question 8

5 marks

Analyze why an enterprise might experience a rising Gross Profit Margin while its Profit Margin is simultaneously falling.

Write your answer out first, then check it against the worked solution.

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