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B Com Exam  >  B Com Tests  >  Test: Ratio Analysis - B Com MCQ

Test: Ratio Analysis - B Com MCQ


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10 Questions MCQ Test - Test: Ratio Analysis

Test: Ratio Analysis for B Com 2024 is part of B Com preparation. The Test: Ratio Analysis questions and answers have been prepared according to the B Com exam syllabus.The Test: Ratio Analysis MCQs are made for B Com 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Ratio Analysis below.
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Test: Ratio Analysis - Question 1
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Which of the following is NOT one of the key aspects of a business that ratio analysis focuses on?

Detailed Solution for Test: Ratio Analysis - Question 1

Ratio analysis focuses on three key aspects of a business: liquidity, profitability, and solvency.
Liquidity- Liquidity ratios measure a company's ability to pay off its short-term debts as they become due, using the company's current or quick assets. Examples include the current ratio and the quick ratio.
Profitability- Profitability ratios measure a company's ability to generate earnings relative to its sales, assets, and equity. Examples include the profit margin, return on assets, and return on equity.
Solvency- Solvency ratios measure a company's ability to meet its long-term obligations. They examine the likelihood of a company continuing to operate indefinitely. Examples include the debt to equity ratio and the equity ratio.
Therefore, each of the options - Liquidity, Profitability, and Solvency - are key aspects that ratio analysis focuses on in a business. So, the correct answer should be "D: All of the above" .

Test: Ratio Analysis - Question 2
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Accounting ratios are calculated using figures from which financial statements?

Detailed Solution for Test: Ratio Analysis - Question 2
Accounting ratios are calculated using figures from both the income statement and the balance sheet. The income statement provides information about revenue, expenses, and profitability, while the balance sheet provides information about assets, liabilities, and equity. By analyzing ratios derived from these financial statements, one can gain insights into the financial health and performance of a business.
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Test: Ratio Analysis - Question 3
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Which ratio is used to measure a company's short-term solvency or liquidity position?

Detailed Solution for Test: Ratio Analysis - Question 3
The current ratio is used to measure a company's short-term solvency or liquidity position. It compares current assets to current liabilities and indicates the firm's ability to meet its short-term obligations. A higher current ratio is generally considered favorable, as it suggests that the company has sufficient current assets to cover its current liabilities.
Test: Ratio Analysis - Question 4
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What does the debt-equity ratio measure?
Detailed Solution for Test: Ratio Analysis - Question 4
The debt-equity ratio measures the financial leverage of a company. It compares the amount of long-term debt to the amount of shareholders' equity. This ratio indicates the proportion of financing that comes from debt compared to equity. A higher debt-equity ratio indicates higher financial leverage, which means that the company has a higher proportion of debt in its capital structure.
Test: Ratio Analysis - Question 5
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What is the purpose of calculating the return on investment ratio?
Detailed Solution for Test: Ratio Analysis - Question 5
The return on investment (ROI) ratio is calculated to measure profitability. It compares the net operating profit to the capital employed. This ratio indicates how much profit the company is earning on its investment. A higher ROI ratio is generally considered favorable, as it suggests that the company is generating more profit relative to the capital invested.
Test: Ratio Analysis - Question 6
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What does the current ratio measure?
Detailed Solution for Test: Ratio Analysis - Question 6
The current ratio measures liquidity. It compares current assets to current liabilities and indicates the company's ability to meet its short-term obligations. A higher current ratio suggests that the company has sufficient current assets to cover its current liabilities and is therefore more liquid.
Test: Ratio Analysis - Question 7
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What does the price earning ratio (P/E) measure?
Detailed Solution for Test: Ratio Analysis - Question 7
The price earning ratio (P/E) measures the market value of shares. It compares the market price per share to the earnings per share. This ratio indicates the rate of return on the market value of the shares and helps investors assess the value of the company's shares in the stock market.
Test: Ratio Analysis - Question 8
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Which ratio indicates the proportion of fixed interest or dividend-bearing funds to non-fixed interest or dividend-bearing funds in the total capital employed?
Detailed Solution for Test: Ratio Analysis - Question 8
The capital gearing ratio indicates the proportion of fixed interest or dividend-bearing funds to non-fixed interest or dividend-bearing funds in the total capital employed. It compares fixed interest-bearing funds (such as long-term loans and debentures) to equity shareholders' funds. This ratio helps assess the financial structure of the company and whether it is operating on trading on equity.
Test: Ratio Analysis - Question 9
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Which ratio measures the profit available to equity shareholders on a per share basis?
Detailed Solution for Test: Ratio Analysis - Question 9
The earning per share (EPS) ratio measures the profit available to equity shareholders on a per share basis. It is calculated by dividing the net profit by the number of equity shares. This ratio helps investors assess the profitability of the company and the potential return on their investment.
Test: Ratio Analysis - Question 10
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What does the pay-out ratio measure?
Detailed Solution for Test: Ratio Analysis - Question 10
The pay-out ratio measures the dividend policy of the company. It compares the dividend per equity share to the earnings per share. This ratio indicates the proportion of earnings that is paid out as dividends to shareholders. A higher pay-out ratio suggests a more generous dividend policy, while a lower pay-out ratio indicates that the company retains a larger portion of its earnings for reinvestment or other purposes.
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