Question 1

If a company's inventory turnover ratio is 4 times and its cost of revenue from operations is $200,000$, what is the average inventory?

Accepted Answer

Correct Option: A. Solution: The inventory turnover ratio is calculated as $$\frac{	ext{Cost of Revenue from Operations}}{	ext{Average Inventory}}$$. Given that the turnover ratio is 4, we have $$4 = \frac{200,000}{	ext{Average Inventory}}$$. Solving for average inventory gives us $50,000$.

Question 2

A company has current assets of Rs. 1,50,000 and current liabilities of Rs. 75,000. If the company decides to pay off Rs. 25,000 of its current liabilities using its current assets, what will be the new current ratio?

Accepted Answer

Correct Option: A. Solution: Initially, the current ratio is $$\frac{1,50,000}{75,000} = 2:1$$. After paying Rs. 25,000, current assets and liabilities become Rs. 1,25,000 and Rs. 50,000 respectively. The new current ratio is $$\frac{1,25,000}{50,000} = 2.5:1$$.

Question 3

A company has a gross profit ratio of 20% and a net profit ratio of 10%. If the revenue from operations is $500,000, what is the net profit?

Accepted Answer

Correct Option: A. Solution: Net profit is calculated as 10% of the revenue from operations. Therefore, net profit = 0.10 	imes $500,000 = $50,000.

Question 4

If a company's inventory turnover ratio is 5 times and the average inventory is $60,000, what is the cost of revenue from operations?

Accepted Answer

Correct Option: A. Solution: Inventory Turnover Ratio = Cost of Revenue from Operations / Average Inventory. Therefore, Cost of Revenue from Operations = 5 	imes $60,000 = $300,000.

Question 5

If a company has a Trade Receivables Turnover Ratio of 4 times, what does it imply about the company's credit collection?

Accepted Answer

Correct Option: A. Solution: A Trade Receivables Turnover Ratio of 4 times implies that the company collects its receivables four times a year, indicating a relatively efficient credit collection process.

Question 6

Which of the following statements best describes the significance of the Interest Coverage Ratio?

Accepted Answer

Correct Option: C. Solution: The Interest Coverage Ratio reveals the number of times interest on long-term debts is covered by the profits available for interest, ensuring the safety of interest payments.

Question 7

A company has a net profit of Rs. 5,05,555 and total revenue from operations of Rs. 22,22,222. What is its net profit ratio?

Accepted Answer

Correct Option: A. Solution: Net profit ratio is calculated as $\frac{5,05,555}{22,22,222} 	imes 100 = 22.75\%$.

Question 8

If a company has equity shareholders' funds of Rs. 5,00,000 and 50,000 equity shares, what is the Book Value per Share?

Accepted Answer

Correct Option: A. Solution: Book Value per Share is calculated as Equity shareholders' funds divided by the number of equity shares. Here, it is Rs. 5,00,000 / 50,000 = Rs. 10.

Question 9

If a business has a net profit before interest and tax of Rs. 2,50,000 and total capital employed of Rs. 10,00,000, what is the Return on Capital Employed (ROCE)?

Accepted Answer

Correct Option: B. Solution: ROCE is calculated as $$\frac{	ext{Profit before Interest and Tax}}{	ext{Capital Employed}} 	imes 100$$. Therefore, $$\frac{2,50,000}{10,00,000} 	imes 100 = 25\%$$.

Question 10

Which of the following is a liquidity ratio?

Accepted Answer

Correct Option: A. Solution: Liquidity ratios, such as the Current Ratio, measure a firm's ability to meet its short-term obligations.

Question 11

A company has a trade receivables turnover ratio of 5 times per year. If its total revenue from operations is $500,000$, what is the average trade receivables for the year?

Accepted Answer

Correct Option: B. Solution: The trade receivables turnover ratio is calculated as $$\frac{	ext{Net Credit Revenue from Operations}}{	ext{Average Trade Receivables}}$$. Given that the turnover ratio is 5, we have $$5 = \frac{500,000}{	ext{Average Trade Receivables}}$$. Solving for average trade receivables gives us $50,000$.

Question 12

A company has a debt-equity ratio of 1.5:1. If it issues additional equity shares worth $100,000, how will this affect the debt-equity ratio?

Accepted Answer

Correct Option: B. Solution: Issuing additional equity shares increases the equity component, thereby decreasing the debt-equity ratio.

Question 13

What does the Debt-Equity Ratio measure in terms of a company's financial structure?

Accepted Answer

Correct Option: A. Solution: The Debt-Equity Ratio measures the relationship between long-term debt and shareholders' equity, indicating the degree of financial leverage used by a company.

Question 14

If a company has a Debt-Equity Ratio of 0.5:1, what impact would issuing additional equity shares have on this ratio?

Accepted Answer

Correct Option: B. Solution: Issuing additional equity shares increases the equity component, thereby reducing the Debt-Equity Ratio.

Question 15

A firm's earnings per share (EPS) is $5, and its market price per share is $50. What is the price/earnings (P/E) ratio?

Accepted Answer

Correct Option: B. Solution: P/E Ratio = Market Price per Share / Earnings per Share = $50 / $5 = 10.

Question 16

Which of the following is a limitation of ratio analysis?

Accepted Answer

Correct Option: B. Solution: Ratio analysis ignores price-level changes, which can affect the comparability of financial statements over time.

Question 17

Which of the following ratios is used to assess the liquidity of a business?

Accepted Answer

Correct Option: B. Solution: The Current Ratio measures the proportion of current assets to current liabilities, which is a key indicator of liquidity.

Question 18

What does a high Inventory Turnover Ratio indicate about a business?

Accepted Answer

Correct Option: A. Solution: A high Inventory Turnover Ratio indicates efficient utilization of inventory, as it shows that inventory is being converted into sales quickly.

Question 19

If a company's earnings per share (EPS) is $5 and the market price of its share is $50, what is the Price/Earnings (P/E) Ratio?

Accepted Answer

Correct Option: B. Solution: The P/E Ratio is calculated as the market price of a share divided by its earnings per share (EPS). Thus, $50/$5 = 10.

Question 20

A firm has a Return on Capital Employed (ROCE) of 18% with a capital employed of Rs. 8,00,000. What is the profit before interest and tax?

Accepted Answer

Correct Option: A. Solution: ROCE is calculated as $$\frac{	ext{Profit before Interest and Tax}}{	ext{Capital Employed}} 	imes 100$$. Rearranging gives Profit before Interest and Tax = ROCE 	imes Capital Employed / 100. Hence, $$18\% 	imes 8,00,000 / 100 = Rs. 1,44,000$$.

Question 21

A company has a dividend payout ratio of 40% and an earnings per share (EPS) of $5. If the market price of the share is $50, what is the price/earnings (P/E) ratio?

Accepted Answer

Correct Option: B. Solution: The P/E ratio is calculated as the market price per share divided by the earnings per share (EPS). Here, P/E ratio = $50 / $5 = 10.

Question 22

If the inventory turnover ratio is 4 times and the average inventory is $50,000, what is the cost of revenue from operations?

Accepted Answer

Correct Option: C. Solution: The cost of revenue from operations is calculated as Inventory Turnover Ratio * Average Inventory = 4 * $50,000 = $200,000.

Question 23

What is the formula for calculating Earnings per Share (EPS)?

Accepted Answer

Correct Option: A. Solution: Earnings per Share (EPS) is calculated as the profit available for equity shareholders divided by the number of equity shares.

Question 24

Which of the following ratios is primarily used to assess a company's ability to meet its short-term obligations?

Accepted Answer

Correct Option: B. Solution: Liquidity ratios are used to measure a company's ability to pay off its short-term liabilities with its short-term assets.

Question 25

If a company's current ratio is 3.5:1 and its quick ratio is 2:1, what does the difference between these ratios primarily indicate?

Accepted Answer

Correct Option: B. Solution: The difference between the current ratio and the quick ratio indicates the presence of significant inventories, as inventories are excluded from quick assets.

Question 26

Which of the following solvency ratios indicates the number of times interest on long-term debts is covered by the profits available for interest?

Accepted Answer

Correct Option: B. Solution: The Interest Coverage Ratio expresses the relationship between profits available for payment of interest and the amount of interest payable, indicating how many times the interest is covered.

Question 27

A firm has a P/E ratio of 20 and an EPS of $3. What is the market price of the firm's share?

Accepted Answer

Correct Option: C. Solution: The market price of the share is calculated by multiplying the P/E ratio by the EPS. Here, Market Price = 20 * $3 = $60.

Question 28

A company has a net profit after tax of $120,000, a tax rate of 30%, and interest on long-term debt of $20,000. Calculate the interest coverage ratio.

Accepted Answer

Correct Option: B. Solution: Net Profit before Tax = $120,000 / (1 - 0.30) = $171,429. Net Profit before Interest and Tax = $171,429 + $20,000 = $191,429. Interest Coverage Ratio = $191,429 / $20,000 = 4.0 times.

Question 29

Company X has a quick ratio of 0.8:1 and a current ratio of 1.5:1. If its current liabilities are Rs. 50,000, what is the value of its current assets?

Accepted Answer

Correct Option: D. Solution: For a current ratio of 1.5:1, current assets are Rs. 75,000 (1.5 times Rs. 50,000). The quick ratio of 0.8:1 implies quick assets are Rs. 40,000 (0.8 times Rs. 50,000). Therefore, the current assets remain Rs. 75,000.

Question 30

If a company's gross profit ratio is 25% and its total revenue from operations is $22,22,222, what is its gross profit?

Accepted Answer

Correct Option: A. Solution: Gross profit is calculated as 25% of the total revenue from operations, which is $0.25 	imes 22,22,222 = Rs. 5,55,555$.

Question 31

Which of the following ratios would be most affected by a change in the company's credit policy?

Accepted Answer

Correct Option: B. Solution: The Trade Receivables Turnover Ratio is directly related to the company's credit policy, as it measures how quickly receivables are collected.

Question 32

If a company's trade payables turnover ratio is 6 times and its net credit purchases are $360,000$, what is the average trade payables?

Accepted Answer

Correct Option: A. Solution: The trade payables turnover ratio is calculated as $$\frac{	ext{Net Credit Purchases}}{	ext{Average Trade Payables}}$$. Given that the turnover ratio is 6, we have $$6 = \frac{360,000}{	ext{Average Trade Payables}}$$. Solving for average trade payables gives us $60,000$.

Question 33

If a company has equity shareholders' funds of Rs. 10,00,000 and 50,000 equity shares, what is the Book Value per Share?

Accepted Answer

Correct Option: B. Solution: Book Value per Share is calculated as: $$	ext{Book Value per Share} = \frac{	ext{Equity Shareholders' Funds}}{	ext{Number of Equity Shares}} = \frac{10,00,000}{50,000} = 20$$

Question 34

Which of the following is a measure of net profit margin in relation to revenue from operations?

Accepted Answer

Correct Option: C. Solution: Net profit ratio measures the net profit margin in relation to revenue from operations.

Question 35

What is the primary purpose of calculating the current ratio in financial analysis?

Accepted Answer

Correct Option: B. Solution: The current ratio is used to measure the short-term solvency of a business by comparing current assets to current liabilities.

Question 36

What does the Dividend Payout Ratio indicate in financial analysis?

Accepted Answer

Correct Option: A. Solution: The Dividend Payout Ratio indicates the proportion of earnings that are distributed to shareholders as dividends, reflecting the company's dividend policy.

Question 37

Which of the following transactions would improve the current ratio if it is initially 2:1?

Accepted Answer

Correct Option: A. Solution: Payment of a current liability reduces current liabilities, thus improving the current ratio.

Question 38

A company has a Profit before Interest and Tax (PBIT) of Rs. 2,40,000 and Capital Employed of Rs. 10,84,000. What is the Return on Capital Employed (ROCE)?

Accepted Answer

Correct Option: A. Solution: ROCE is calculated as (Profit before Interest and Tax / Capital Employed) * 100 = (Rs. 2,40,000 / Rs. 10,84,000) * 100 = 22.14%.

Question 39

If a company's gross profit ratio is 30% and its revenue from operations is $500,000, what is the cost of revenue from operations?

Accepted Answer

Correct Option: B. Solution: The gross profit is 30% of $500,000, which is $150,000. Therefore, the cost of revenue from operations is $500,000 - $150,000 = $350,000.

Question 40

Which of the following transactions would improve the current ratio?

Accepted Answer

Correct Option: A. Solution: Payment of a current liability would improve the current ratio as it reduces current liabilities, thereby increasing the ratio.

Question 41

What is the primary purpose of financial statement analysis?

Accepted Answer

Correct Option: B. Solution: Financial statement analysis provides financial data which require analysis, comparison, and interpretation for decision-making by users.

Question 42

A company has a current ratio of 2:1 and a quick ratio of 1.5:1. If the current liabilities are $50,000, what is the value of the company's inventories?

Accepted Answer

Correct Option: A. Solution: The current assets are $100,000 (2 	imes $50,000) and the quick assets are $75,000 (1.5 	imes $50,000). The inventories are the difference between current assets and quick assets, which is $100,000 - $75,000 = $25,000.

Question 43

Which of the following is a limitation of ratio analysis?

Accepted Answer

Correct Option: B. Solution: Ratio analysis ignores price-level changes due to inflation, which can affect the interpretation of financial data over time.

Question 44

A company has a net profit of $300,000 and revenue from operations of $1,500,000. What is the net profit ratio?

Accepted Answer

Correct Option: B. Solution: Net profit ratio is calculated as (Net Profit / Revenue from Operations) * 100 = ($300,000 / $1,500,000) * 100 = 20%.

Question 45

A firm has a current ratio of 3:1 and a quick ratio of 2:1. If the current liabilities are Rs. 60,000, what is the value of the firm's inventories?

Accepted Answer

Correct Option: C. Solution: With a current ratio of 3:1, current assets are Rs. 1,80,000 (3 times Rs. 60,000). For a quick ratio of 2:1, quick assets are Rs. 1,20,000 (2 times Rs. 60,000). Inventories are the difference between current assets and quick assets: Rs. 1,80,000 - Rs. 1,20,000 = Rs. 60,000.

Question 46

A company's working capital turnover ratio is 10 times. If its revenue from operations is $1,000,000$, what is the working capital?

Accepted Answer

Correct Option: A. Solution: The working capital turnover ratio is calculated as $$\frac{	ext{Revenue from Operations}}{	ext{Working Capital}}$$. Given that the turnover ratio is 10, we have $$10 = \frac{1,000,000}{	ext{Working Capital}}$$. Solving for working capital gives us $100,000$.

Question 47

A company has a net profit after tax of Rs. 1,50,000, preference dividend of Rs. 20,000, and 40,000 equity shares. If the market price of the share is Rs. 50, what is the Price/Earnings (P/E) Ratio?

Accepted Answer

Correct Option: A. Solution: First, calculate EPS: $$	ext{EPS} = \frac{	ext{Net Profit after Tax} - 	ext{Preference Dividend}}{	ext{Number of Equity Shares}} = \frac{1,50,000 - 20,000}{40,000} = 3.25$$. Then, calculate P/E Ratio: $$	ext{P/E Ratio} = \frac{	ext{Market Price of a Share}}{	ext{EPS}} = \frac{50}{3.25} = 15.38$$

Question 48

A company has a capital employed of Rs. 5,00,000 and a profit before interest and tax of Rs. 1,00,000. Calculate the Return on Capital Employed (ROCE).

Accepted Answer

Correct Option: C. Solution: ROCE is calculated as $$\frac{	ext{Profit before Interest and Tax}}{	ext{Capital Employed}} 	imes 100$$. Thus, $$\frac{1,00,000}{5,00,000} 	imes 100 = 20\%$$.

Question 49

A company has a current ratio of 3:1 and a quick ratio of 1.5:1. If the current liabilities are $50,000, what is the value of the inventories?

Accepted Answer

Correct Option: C. Solution: The difference between the current ratio and the quick ratio is due to inventories. Therefore, inventories = (Current Ratio - Quick Ratio) * Current Liabilities = (3 - 1.5) * $50,000 = $75,000.

Question 50

Which of the following statements is true regarding the significance of Return on Capital Employed (ROCE)?

Accepted Answer

Correct Option: B. Solution: ROCE measures the efficiency of the business in utilizing the funds entrusted to it by shareholders, debenture-holders, and long-term loans.

Question 51

A company has current assets worth Rs. 1,34,000 and current liabilities worth Rs. 1,04,000. What is the current ratio?

Accepted Answer

Correct Option: A. Solution: The current ratio is calculated as Rs. 1,34,000 / Rs. 1,04,000 = 1.29:1.

Question 52

Which ratio would be most useful in assessing the efficiency of a company's operations?

Accepted Answer

Correct Option: C. Solution: The Inventory Turnover Ratio measures how efficiently a company converts its inventory into sales, reflecting operational efficiency.

Question 53

What is the formula for calculating the current ratio?

Accepted Answer

Correct Option: A. Solution: The current ratio is calculated as Current Assets divided by Current Liabilities.

Question 54

A company has a profit after tax of Rs. 2,00,000 and has issued 50,000 equity shares. If the dividend on preference shares is Rs. 20,000, what is the Earnings per Share (EPS)?

Accepted Answer

Correct Option: C. Solution: EPS is calculated as: $$	ext{EPS} = \frac{	ext{Profit after Tax} - 	ext{Dividend on Preference Shares}}{	ext{Number of Equity Shares}} = \frac{2,00,000 - 20,000}{50,000} = 3.60$$

Question 55

What does the gross profit ratio indicate?

Accepted Answer

Correct Option: A. Solution: The gross profit ratio indicates the gross margin on products sold and the margin available to cover operating expenses.

Question 56

If a company has a high Total Assets to Debt Ratio, what does it imply about the company's financial structure?

Accepted Answer

Correct Option: B. Solution: A high Total Assets to Debt Ratio indicates that the company's assets are mainly financed by equity, suggesting a more secure financial structure.

Question 57

Which of the following ratios is used to evaluate a company's ability to meet its long-term obligations?

Accepted Answer

Correct Option: C. Solution: The Debt-Equity Ratio measures the relationship between long-term debt and equity, indicating the company's ability to meet long-term obligations.

Question 58

If a firm's return on investment (ROI) is 15% and the capital employed is $1,000,000, what is the profit before interest and tax (PBIT)?

Accepted Answer

Correct Option: B. Solution: ROI is calculated as Profit before Interest and Tax (PBIT) divided by Capital Employed. So, PBIT = ROI 	imes Capital Employed = 0.15 	imes $1,000,000 = $150,000.

Question 59

If a company's debt-equity ratio is 0.5:1, which of the following transactions will decrease this ratio?

Accepted Answer

Correct Option: A. Solution: Issuing new equity shares increases the equity portion, thus decreasing the debt-equity ratio.

Question 60

Given a firm's capital employed is Rs. 12,00,000 and its ROCE is 15%, what is the profit before interest and tax?

Accepted Answer

Correct Option: B. Solution: ROCE is calculated as $$\frac{	ext{Profit before Interest and Tax}}{	ext{Capital Employed}} 	imes 100$$. Rearranging gives Profit before Interest and Tax = ROCE 	imes Capital Employed / 100. Therefore, $$15\% 	imes 12,00,000 / 100 = Rs. 1,80,000$$.

Question 61

How does a high inventory turnover ratio affect a business?

Accepted Answer

Correct Option: B. Solution: A high inventory turnover ratio suggests efficient utilization of inventory, indicating that inventory is being converted into sales quickly.

Question 62

A firm's net profit after tax is $120,000, and its shareholders' funds are $600,000. Calculate the Return on Shareholders' Funds (RONW).

Accepted Answer

Correct Option: C. Solution: Return on Shareholders' Funds (RONW) is calculated as (Net Profit after Tax / Shareholders' Funds) 	imes 100. Therefore, RONW = ($120,000 / $600,000) 	imes 100 = 20%.

Question 63

What is the formula for calculating Return on Capital Employed (ROCE)?

Accepted Answer

Correct Option: B. Solution: Return on Capital Employed is calculated as Profit before Interest and Tax divided by Capital Employed.

Question 64

A company has a debt-equity ratio of 0.5:1. If its equity is $400,000, what is the total amount of its long-term debts?

Accepted Answer

Correct Option: B. Solution: The debt-equity ratio is 0.5:1, meaning the debt is half of the equity. Therefore, the long-term debts are 0.5 	imes $400,000 = $200,000.

Ratio Type	Formula	Description
Current Ratio	Current Assets / Current Liabilities	Measures short-term solvency
Liquid Ratio	(Current Assets - Inventory) / Current Liabilities	Measures immediate liquidity
Debt Equity Ratio	Total Debts / Shareholders' Funds	Measures financial leverage
Interest Coverage Ratio	Net Profit before Interest and Tax / Interest on Long-term Debts	Measures ability to cover interest payments
Gross Profit Ratio	Gross Profit / Revenue from Operations	Measures profitability from sales
Return on Investment (ROI)	Net Profit / Total Investment	Measures efficiency of investment

Accounting Ratios

Learning Objectives

Learning Objectives

Revision Notes & Summary

Accounting Ratios

1. Meaning of Accounting Ratios

2. Objectives of Accounting Ratios

3. Advantages of Ratio Analysis

4. Limitations of Ratio Analysis

5. Types of Ratios

6. Key Ratios and Their Formulas

7. Example Calculations

8. Conclusion

Exam Tips & Common Mistakes

Common Mistakes and Exam Tips for Accounting Ratios

Common Pitfalls

Tips for Success

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Multiple Choice Questions

Q1.If a company's inventory turnover ratio is 4 times and its cost of revenue from operations is 200,000200,000200,000, what is the average inventory?

Correct Answer: A

Q2.A company has current assets of Rs. 1,50,000 and current liabilities of Rs. 75,000. If the company decides to pay off Rs. 25,000 of its current liabilities using its current assets, what will be the new current ratio?

Correct Answer: A

Q3.A company has a gross profit ratio of 20% and a net profit ratio of 10%. If the revenue from operations is $500,000, what is the net profit?

Correct Answer: A

Q4.If a company's inventory turnover ratio is 5 times and the average inventory is $60,000, what is the cost of revenue from operations?

Correct Answer: A

Q5.If a company has a Trade Receivables Turnover Ratio of 4 times, what does it imply about the company's credit collection?

Correct Answer: A

Q6.Which of the following statements best describes the significance of the Interest Coverage Ratio?

Correct Answer: C

Q7.A company has a net profit of Rs. 5,05,555 and total revenue from operations of Rs. 22,22,222. What is its net profit ratio?

Correct Answer: A

Q8.If a company has equity shareholders' funds of Rs. 5,00,000 and 50,000 equity shares, what is the Book Value per Share?

Correct Answer: A

Q9.If a business has a net profit before interest and tax of Rs. 2,50,000 and total capital employed of Rs. 10,00,000, what is the Return on Capital Employed (ROCE)?

Correct Answer: B

Q10.Which of the following is a liquidity ratio?

Correct Answer: A

Q11.A company has a trade receivables turnover ratio of 5 times per year. If its total revenue from operations is 500,000500,000500,000, what is the average trade receivables for the year?

Correct Answer: B

Q12.A company has a debt-equity ratio of 1.5:1. If it issues additional equity shares worth $100,000, how will this affect the debt-equity ratio?

Correct Answer: B

Q13.What does the Debt-Equity Ratio measure in terms of a company's financial structure?

Correct Answer: A

Q14.If a company has a Debt-Equity Ratio of 0.5:1, what impact would issuing additional equity shares have on this ratio?

Correct Answer: B

Q15.A firm's earnings per share (EPS) is 5,anditsmarketpricepershareis5, and its market price per share is 5,anditsmarketpricepershareis50. What is the price/earnings (P/E) ratio?

Correct Answer: B

Q16.Which of the following is a limitation of ratio analysis?

Correct Answer: B

Q17.Which of the following ratios is used to assess the liquidity of a business?

Correct Answer: B

Q18.What does a high Inventory Turnover Ratio indicate about a business?

Correct Answer: A

Q19.If a company's earnings per share (EPS) is 5andthemarketpriceofitsshareis5 and the market price of its share is 5andthemarketpriceofitsshareis50, what is the Price/Earnings (P/E) Ratio?

Correct Answer: B

Q20.A firm has a Return on Capital Employed (ROCE) of 18% with a capital employed of Rs. 8,00,000. What is the profit before interest and tax?

Correct Answer: A

Q21.A company has a dividend payout ratio of 40% and an earnings per share (EPS) of 5.Ifthemarketpriceoftheshareis5. If the market price of the share is 5.Ifthemarketpriceoftheshareis50, what is the price/earnings (P/E) ratio?

Correct Answer: B

Q22.If the inventory turnover ratio is 4 times and the average inventory is $50,000, what is the cost of revenue from operations?

Correct Answer: C

Q23.What is the formula for calculating Earnings per Share (EPS)?

Correct Answer: A

Q24.Which of the following ratios is primarily used to assess a company's ability to meet its short-term obligations?

Correct Answer: B

Q25.If a company's current ratio is 3.5:1 and its quick ratio is 2:1, what does the difference between these ratios primarily indicate?

Correct Answer: B

Q26.Which of the following solvency ratios indicates the number of times interest on long-term debts is covered by the profits available for interest?

Correct Answer: B

Q27.A firm has a P/E ratio of 20 and an EPS of $3. What is the market price of the firm's share?

Correct Answer: C

Q28.A company has a net profit after tax of 120,000,ataxrateof30120,000, a tax rate of 30%, and interest on long-term debt of 120,000,ataxrateof3020,000. Calculate the interest coverage ratio.