MCQ'S OF FINANCIAL MANAGEMENT

FOR CONCURRENT EVALUATION 3

1. Q.1 In the Balance sheet of a firm,the debt equity ratio is 2:1.The amount of long
term sources is Rs.12 lac.What is the amount of tangible net worth of the firm?
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A. Rs.12 lac.
B. Rs.8 lac.
C. Rs.4 lac.
D. Rs.2 lac.

2. Q.2 Debt Equity Ratio is 3:1,the amount of total assets Rs.20 lac,current ratio is
1.5:1 and owned funds Rs.3 lac.What is the amount of current asset?
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A. Rs.5 lac.
B. Rs.3 lac.
C. Rs.12 lac.
D. None of the above

3. Q.3 Banks generally prefer Debt Equity Ratio at :

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A. 1 : 1
B. 1 : 3
C. 2 : 1
D. 3 : 1

4. Q.4 If a company issues bonus shares the debt equity ratio will...
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A. Remain unaffected
B. Will improve
C. Both A & B
D. None of the above
5. Q.5 An asset is a____
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A. Source of fund
B. Use of fund
C. Inflow of funds
D. None of the above

6. Q.6 In the balance sheet amount of total assets is Rs.10 lac, current liabilities Rs.5
lac & capital & reserves are Rs.2 lac .What is the debt equity ratio?
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A. 1 : 1
B. 1.5 : 1
C. 2 : 1

D. None of the above

7. Q.7 In last year the current ratio was 3:1 and quick ratio was 2:1.Presently current
ratio is 3:1 but quick ratio is 1:1.This indicates comparably
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A. High liquidity
B. Low liquidity
C. Higher stock
D. Lower Stock

8. Q.8 The degree of solvency of two firms can be compared by measuring

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A. Net worth
B. Tangible net worth
C. Assets coverage ratio
D. Solvency ratio

9. Q.9 Current ratio is 4:1.Net Working Capital is Rs.30,000.Find the amount of

current Assets.
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A. Rs. 10,000/-
B. Rs. 30,000/-
C. Rs. 40,000/-
D. Rs. 24,000/-
10. Q.10 Quick assets do not include
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A. Govt. bonds
B. Book debts
C. Advance for supply of raw materials
D. Inventories

11. Q.11 Stock is not included in the current assets when calculating the acid test
ratio because:
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A. Stock is not a liquid asset

B. It makes comparison easier as only two current liabilities are included in the
acid test ratio
C. Only debtors can be included, as they will be converted into cash shortly
D. Banks only recognise cash and debtors as liquid assets

12. Q.12 If a firm sold stock on credit then which of the following would be the
result?
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A. Acid test ratio increases

B. Current ratio increases
C. Current ratio decreases
D. Acid test ratio decreases

13. Q.13 A firm experiencing difficulties due to rapid growth in sales is known as one
which is:
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A. Solvent
B. Overtrading
C. Insolvent
D. Bankrupt

14. Q.14 Comparison of the market price of the share with the earnings per share
gives us which ratio?
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A. Interest coverage

B. Dividend yield
C. Dividend coverage
D. Price / Earnings ratio
15. Q.15 If we want to examine the efficiency of a firm, which of the following ratios
would be helpful?
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A. Stock turnover
B. Dividend coverage
C. Current ratio

D. Gearing

16. Q.16 Which of the following does not explain why debtors are more liquid than
stock?
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A. Most firms give long credit periods

B. Most debtors do pay what they owe
C. Availability of debt factors

D. Legal right to money owed by debtors

17. Q.17 The proportion of sales that is accounted for by total costs can be
ascertained by which ratio?
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A. Stock turnover
B. Return on capital employed
C. Net profit percentage
D. Gross profit percentage

18. Q.18 If a firm repays loans with cash then what will be the effect on ratios?
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A. Stock turnover increases

B. Gearing increases

C. Current ratio increases

D. Acid test ratio decreases

19. Q.19 Creditors would not be interested in which group of ratios?

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A. Shareholder

B. Shareholder
C. Solvency
D. Profitability
20. Q.20 Which item would not be included in the calculation of the Price/Earnings
ratio?
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A. Number of ordinary shares outstanding

B. Number of ordinary shares outstanding
C. Total dividends distributed

D. Market price of share

21. Q.21 Why is profit after interest and tax used for shareholder ratio calculations?
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A. It is prudent to do so

B. This measure of profit shows what is available to the shareholder

C. Compliance with company law
D. Historical precedence

22. Q.22 Which of the following is not a category of ratios?

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A. Profitability
B. Solvency
C. Management
D. Efficiency

23. Q.23 How can supermarkets generate high profit levels with low profit margins?
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A. How can supermarkets generate high profit levels with low profit margins?
B. High liquidity

C. Low dividends
D. Low gearing

24. Q.24 Profitability may be more important than solvency when:

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A. The firm has recently begun trading

B. During period of economic downturn

C. When the firm has few options for short-term finance
D. Shareholders pressure for higher returns
25. Q.25 Which of the following is not an efficiency ratio?
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A. Interest coverage

B. Asset turnover
C. Stock turnoner
D. Debtors days

26. Q.26 Which of the following statements is incorrect?

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A. Liabilities + Assets = Capital

B. Assets - Liabilities = Capital

C. Liabilities + Capital = Assets
D. Assets - Capital = Liabilities

27. Q.27 Accounting Ratios are important tools used by

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A. Managers
B. Researchers
C. Investors
D. All of the above

28. Q.28 Working Capital Turnover measures the relationship of Working Capital
with:
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A. Fixed Assets
B. Sales

C. Stock
D. Purchases

29. Q.29 In Net Profit Ratio, the denominator is:

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A. Net Purchases

B. Net Sales
C. Net Credit Sales

D. Cost of Goods Sold

30. Q.30 In Current Ratio, Current Assets are compared with:
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A. Current Liabilities
B. Current Profit
C. Fixed Aseets

D. Equity Share Capital

31. Q.31 Which of the following does not help to increase Current Ratio?
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A. Issue of Debentures to buy Stock

B. Issue of Debentures to pay Creditors

C. Sale of Investment to pay Creditors

D. Avail Bank Overdraft to buy Machine

32. Q.32 Debt to Total Assets Ratio can be improved by:

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A Borrowing More
B. Issue of Debentures

C. Issue of Equity Shares

D. Redemption of Debt

33. Q.33 Ratio of Net Income to Number of Equity Shares known as:
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A. Price Earnings Ratio

B. Net Profit Ratio

C. Earnings Per Share

D. Dividend per Share

34. Q.34 A Current Ratio of Less than One means:

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A. Current Liabilities < Current Assets

B. Fixed Assets > Current Assets

C. Current Assets < Current Liabilities
D. Share Capital > Current Assets
35. Q.35 A firm has Capital of Rs. 10,00,000; Sales of Rs. 5,00,000; Gross Profit of Rs.
2,00,000 and Expenses of Rs. 1,00,000. What is the Net Profit Ratio?
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A. 20%

B. 50%
C. 10%
D. 40%

36. Q.36 . XYZ Ltd. has earned 8% Return on Total Assests of Rs. 50,00,000 and has a
Net Profit Ratio of 5%. Find out the Sales of the firm.
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A. Rs .4,00,000/-

B. Rs.2,50,000/-
C. Rs. 80,00,000/-

D. Rs. 83,33,333/-

37. Q.37 Suppliers and Creditors of a firm are interested in:

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A. Profitability Position
B. Liquidity Position

C. Market Share Position

D. Debt Position

38. Q.38 Which of the following is a measure of Debt Service capacity of a firm?
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A. Current Ratio
B. Acid Test Ratio

C. Interest Coverage Ratio

D. Debtors Turnover

39. Q.39 Gross Profit Ratio for a firm remains same but the Net Profit Ratio is
decreasing. The reason for such behavior could be:
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A. Increase in Costs of Goods Sold

B. If Increase in Expense
C. Increase in Dividend

D. Decrease in Sales
40. Q.40 Which of the following statements is correct?
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A. A Higher Receivable Turnover is not desirable

B. Interest Coverage Ratio depends upon Tax Rate
C. Increase in Net Profit Ratio means increase in Sales

D. Lower Debt-Equity Ratio means lower Financial Risk

41. Q.41 Return on Assets and Return on Investment Ratios belong to:
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A. Liquidity Ratios

B. Profitability Ratios
C. Solvency Ratios

D. Turnover

42. Q.42 XYZ Ltd. has a Debt Equity Ratio of 1.5 as compared to 1.3 Industry average.
It means that the firm has:
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A. Higher Liquidity
B. Higher Financial Risk

C. Higher Profitability
D. Higher Capital Employed

43. Q.43 Ratio Analysis can be used to study liquidity, turnover, profitability, etc. of a
firm. What does Debt-Equity Ratio help to study?
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A. Solvency
B. Liquidity

C. Profitability
D. Turnover

44. Q.44 In Inventory Turnover calculation, what is taken in the numerator?

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A. Sales

B. Cost of Goods Sold

C. Opening Stock

D. Closing Stock
45. Q.45 Which of the following is not a current asset
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A. Cash in hand

B. Cash at Bank
C. Debtors

D. Creditors

46. Q.46 Insufficient working capital results in

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A. Block of cash

B. Loosing interests
C. Lack of production
D. Lack of smooth flow of production

47. Q.47 Excess working capital results in

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A. Block of cash
B. Loosing interests
C. Lack of production
D. Lack of smooth flow of production

48. Q.48 Adequate working capital means

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A. Sufficient funds
B. Insufficient funds

C. Lack of funds
D. All of the above

49. Q.49 An example of current asset

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A. Cash

B. Debtors
C. Marketable securities

D. All of the above

50. Q.50 An example of current liability
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A. Creditors
B. Outstanding Expenses
C. Provision for depreciation

D. All of the above

51. Q.51 The asset which can be converted into cash when ever required with out
loosing its value is
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A. Current Asset

B. Fixed Asset
C. Current Liability

D. Variable Asset

52. Q.52 The liability which should be paid within a period of one year is known as
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A. Current Asset
B. Current Liability
C. Fixed Asset
D. Variable Asset

53. Q.53 The investment in total current assets is known as

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A. Gross Working Capital

B. Net Working Capital
C. Permanent Working Capital
D. Temporary Working Capital

54. Q.54 The excess of current assets over current liabilities is known as:
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A. Gross Working Capital

B. Net Working Capital

C. Permanent Working Capital

D. Temporary Working Capital

55. Q.55 Stock is not included in the current assets when calculating the acid test
ratio because:
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A. It makes comparison easier as only two current liabilities are included in the
acid test ratio
B. Stock is not a liquid asset
C. Banks only recognise cash and debtors as liquid assets

D. Only debtors can be included, as they will be converted into cash shortly

56. Q.56 If a firm sold stock on credit then which of the following would be the
result?
Mark only one oval.

A. Current ratio increases

B. Acid test ratio decreases
C. Acid test ratio increases

D. Current ratio decreases

57. Q.57 Comparison of the market price of the share with the earnings per share
gives us which ratio?
Mark only one oval.

A. Dividend Payout Ratio

B. Price / Earning Ratio

C. Dividend Yield
D. Interest Coverage

58. Q.58 If we want to examine the efficiency of a firm, which of the following ratios
would be helpful?
Mark only one oval.

A. Capital Gearing Ratio

B. Current Ratio
C. Earnings Per Share
D. Stock Turnover Ratio

59. Q.59 Which of the following does not explain why debtors are more liquid than
stock?
Mark only one oval.

A. Most debtors do pay what they owe

B. A. Most debtors do pay what they owe

C. Availability of debt factors

D. Most firms give long credit periods

60. Q.60 The proportion of sales that is accounted for by total costs can be
ascertained by which ratio?
Mark only one oval.

A. Net Profit Ratio

B. Gross Profit Ratio

C. Stock Turnover Ratio
D. Return on Capital Employed

61. Q.61 Creditors would not be interested in which group of ratios?

Mark only one oval.

A. Profitability
B. Solvency
C. Shareholder
D. Capital Structure

62. Q.62 An acid test ratio which is negative would mean:

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A. Current liabilities are larger than current assets

B. Stock levels are very high

C. A mistake has been made in the calculation

D. The firm may be insolvent

63. Q.63 An explanation of why the current ratio should not be too high would not
include:
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A. Higher quantities debtors increases the chances of bad debts

B. Stocks increase storage costs
C. Many banks now pay high interest on instant access accounts
D. Cash pays low returns

64. Q.64 The money a business spent to turn inventory into finished products is
known as :
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A. Non-operating Expenses
B. Operating Expenses
C. Capital Expenses

D. None of these
65. Q.65 Gross Profit minus operating expenses and taxes
Mark only one oval.

A. Net Income
B. Revenue
C. Income
D. Multiple Step

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