1) A company has a gearing ratio of 50%, what does this mean? a) Its net profit makes up 50% of sales b) For every £1 the business makes it spends 50p on expenses c) 50% of the business is financed by borrowed money 2) The ideal figure for the current ratio is......? a) 3:1 b) 2:1 c) 1:1 d) 4:1 3) The ideal figure for the acid test ratio is....? a) 2:1 b) 3:1 c) 0.5:1 d) 1:1 4) What is the difference between the current and acid test ratio? a) Current ratio doesn't include inventory b) Acid test doesn't include inventory c) Current ratio is more up-t0-date 5) GP% of 30% means......? a) For every £1 of sales made, 30p is converted to gross profit b) For every £1 of sales made, 30p is turned into net profit c) Shareholders receive a 30% return 6) How could a business increase its gross profit percentage? a) Decrease expenses b) Decrease amount of loans the business has c) Source a cheaper supplier for its materials d) Increase sales revenue e) Decrease sales revenue 7) What should be compared to a ROCE ratio result? a) Tax rates b) Inflation rates c) Interest rates 8) Business A has a ROCE of 20%, business B has a ROCE of 10%, which one would you invest in? a) Business A b) Business B 9) Which ratio result should always be compared to interest rates? a) Current ratio b) Gearing c) Net Profit Margin d) Return on Capital Employed 10) What recommendation would you make to a company with a gearing ratio of 60%? a) Obtain more loans b) Try to pay off loans and mortgages 11) Why does a high gearing ratio pose a risk to a business? a) If interest rates increase the business could be crippled with high repayments on loans and mortgages b) It means shareholders need to receive higher dividends c) The business may struggle to obtain further loans in the future. d) it means the business isn't profitable 12) Why in the current ratio does a business need twice as many current assets as current liabilities a) because liabilities can double overnight b) because the current assets include inventory which takes a long time to sell.

Ratio analysis

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