Cambridge International A Level · Business (9609)

Analysis of published accounts (A Level): Practice Questions

4 multiple-choice questions marked as you go, and 2 written questions with worked solutions. All on Analysis of published accounts (A Level).

6 questions22 marksFree, no account

Question 1

1 mark

A business decides to use a portion of its cash reserves to purchase additional raw materials for inventory. What is the most likely immediate impact of this transaction on the acid test ratio of the business?

Question 2

1 mark

A business deci de s to un de rtake a sale an d lease back agree me n t of its hea d quarte r s bui l d in g an d use s the en tire cash procee d s to repa y a lon g-ter m ban k loa n. What is the most like l y impac t on the busines s's gea r in g rat io an d non-curre n t as se t s?

Question 3

1 mark

A business significantly increases its reliance on long-term debt to fund expansion. Assuming no other changes, what is the most likely impact on its Gearing Ratio and its Return on Capital Employed (ROCE)?

Question 4

1 mark

A busine s s fi n d s tha t it s tra d e pa y able s turnove r (day s) ha s in crea se d sig n i f ic a n t l y ov e r the pa s t yea r. What is the most lik e l y ne g at iv e imp l ic at io n of thi s ch a n g e for the busine s s?

Question 5

10 marks

Beta Manufacturing Plc. reported the following financial data for the year ended 31 December 2023:

Current Assets: $300,000
Inventory: $100,000
Current Liabilities: $200,000

(a) Calculate the Current Ratio and the Acid Test Ratio for Beta Manufacturing Plc. Show your workings. (4 marks)

(b) Interpret the calculated ratios and explain what they reveal about Beta Manufacturing Plc.'s liquidity position. (3 marks)

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

Question 6

8 marks

The following financial information has been extracted from the published accounts of DXM plc for the financial year ending 31 March 2024:

Financial Data:
Revenue: $ \$800,000 $
Cost of Sales: $ \$600,000 $
Profit from operations: $ \$120,000 $
Current Assets: $ \$200,000 $ (including $ \$80,000 $ in inventory)
Current Liabilities: $ \$100,000 $
Non-current Liabilities: $ \$300,000 $
Capital Employed: $ \$600,000 $

(a) Calculate the Acid Test Ratio and the Return on Capital Employed (ROCE) for DXM plc. Show all formulas and workings.

(b) Calculate the Gearing Ratio and analyze the implications of this result for the company’s ability to secure further external long-term finance.

(c) Evaluate the extent to which improving the rate of inventory turnover is the most effective way for DXM plc to manage its liquidity challenges.

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

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