Senior Secondary (HKDSE) · Business, Accounting and Financial Studies

Financial Analysis: Practice Questions

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

8 questions19 marksFree, no account

Question 1

1 mark

The net profit ratio is a measure used to evaluate a company's:

Question 2

1 mark

A company's current assets are $$250,000$$ and current liabilities are $$100,000$$. The inventory included in current assets is $$80,000$$. What are the company's current ratio and quick ratio?

Question 3

1 mark

A company has a quick ratio of $ 1.2:1 $. Which of the following transactions would result in an increase in its quick ratio?

Question 4

1 mark

The total assets turnover ratio is primarily used by investors to evaluate which aspect of a company's performance?

Question 5

1 mark

Which of the following is a significant limitation when using accounting ratios to compare the financial performance of two different companies?

Question 6

5 marks

A company with a gearing ratio of $ 60\% $ and a current ratio of $ 2:1 $ decides to issue $ \$500,000 $ of ordinary shares to fully settle a long-term bank loan of the same amount. Analyze the immediate impact of this transaction on the company's gearing ratio and its working capital.

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Question 7

3 marks

Explain the effect on a company's gearing ratio if it issues new ordinary shares to fully redeem its long-term debentures.

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Question 8

6 marks

Store A has an inventory turnover of $ 15 $ times and a gross profit ratio of $ 10\% $, while Store B has a turnover of $ 3 $ times and a ratio of $ 40\% $. Identify the likely business model adopted by Store A and explain the trade-off between inventory turnover and profit margin in achieving a target return on capital employed.

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