Financial Statement Analysis Multiple Choice Questions and Answers pdf

Financial Statement Analysis Multiple Choice Questions and Answers pdf for the preparation of academic and competitive exams.

Q1. True or False:

1. Equity to fixed interest-bearing securities is the acid test ratio.

2. Debt equity ratio is a ‘solvency ratio.’

3. Ratio analysis is a technique of planning & control.

4. A firm’s ability to meet the interest charges and repayment dues on

5. Long term obligations are referred to as its solvency.

6. Rate of return on capital employed is a turnover ratio.

7. Law gearing is preferable to high gearing.

8. Capital gearing is the ratio of debt to equity.

9. ‘Acid test’ divides liquidity.

10. For stock turnover ratio, arrange stock is to be calculated.

11. A decreased stock tumour ratio usually indicates expanding business

Answers: (1) F, (2) T, (3) F, (4) T, (5) F, (6) T, (7) F, (8) T, (9) T, (10) F

Q2. The C.R of a Co. is 2:1. Which of the following suggestions would improve the ratio, which would reduce it and which would not change it?

1. To pay a current liability
2. To sell a motor car for cash at a slight
3. To borrow money on interest – nearing possessor note.
4. To purchase stock for cash
5. To give an interest-bearing promissory note to a
Creditor to whom money was owed on current A/C.

1) Improve the ratio
2) Do
3) Reduce the ratio
4) No change in the ratio
5) No change in the ratio

Q3. Assuming the C.R is 2, a state in each of the following cases, Whether the ratio will improve or decline or will have the change.

1. Payment of a current liability.
2. Purchase of fixed assets.
3. Cash collected from customers.
4. Bills receivable dishonoured.
5. Issue of new shares.

1) Improve
2) Decline
3) No change
4) No change
5) e) Improve

Q4. Multiple choices:

1. Ratio of ‘net sales’ to’ net W.C’ is a:-
A) W.C. turnover ratio
B) Profitability ratio
C) Liquidity ratio
D) Can’t say
Ans. (a)

2. Observing changes in the financial variable across the years in:-
A) Vertical analysis.
B) Horizontal analysis.
C) Inter-firm comparison.
D) None
Ans. (b)

3. Ratio of net profit before interest & fax to sales in a:-
A) Operating profit ratio
B) Capital gearing
C) Solvency ratio
D) Can’t say
Ans. (a)

4. The statistical yardstick that provides a measure of the relationship
Between two accounting figures in:-
A) A operating current ratio
B) The accounting ratio
C) Input-output ratio
D) None
Ans. (b)

5. Debt equity ratio is a:-
A) Liquidity ratio
B) Solvency ratio
C) Profitability ratio
D) None
Ans. (b)

6. The turnover ratio helps management in:-
A) Managing resources
B) Managing a debit
C) Evaluating performance
Ans. (c)

7. Long term solvency is indicated by
A) Current ratio
B) Debt / easily ratio
C) Net profit ratio
Ans. (b)

8. The three most useful general purpose financial statements for management are:-
a) P & L A/C, B/S & statement of retained earnings.
b) P & L A/C, B/S & statement of changes in financial position.
c) P & L A/C, fund flow statement, stat of R.E
d) Stat. of R.E, B/S & fund flow statement
Ans. (b)

9. In case of a Ltd. Co. the term financial statement includes:-
a) P & L A/C & B/S
b) P & L A/C P & L appropriation A/C & B/S.
c) B/S
d) None
Ans. (b)

10. The term current assets do not include:-
a) Payments in advance
b) Bills receivable
c) Long-term deferred charges.
e) None
Ans. (c)

11. The following is a recorded fact:-
a) Mkt. Value of investment
b) Debtors
c) Replacement cost of M/C
d) None
Ans. (b)

12. The term fixed assets include:-
a) Stock in trade
b) Furniture
c) Payments in advance.
d) None
Ans. (b)

Q5. Which accounting ratio will be useful in indicating the following

1. Low capacity utilization.
2. Following the demand for the product in the Mkt.
3. Inutility to pay interest.
4. Borrowing for the short term & investing in long term assets.
5. Large inventory accumulation in anticipation of price rise in future.
6. Inefficient collection of debtors.
7. Inability to pay dues to F.I’S.
8. Return on shareholders funds is higher than the overall
Return on investment.
9. Liquidity Crisis.
10. Increase in average credit period to maintain sales in view of
Falling demand.

1. Fixed assets turnover ratio
2. Finished good turnover
3. Interest Coverage ratio
4. Current ratio & fixed assets ratio
5. Inventory turnover ratio
6. Debtor’s turnover ratio
7. Debt coverage ratio
8. Debt equity ratio
9. Current ratio & quick ratio
10. Debtors turnover ratio & Av. Collection period

Q6. Fill in the blanks:-

1. The two statements which are generally included in the definition of financial of
Statements are ……
Ans. P & L A/C balance sheet

2. Income statement ( P & L A/C ) …… the revenues and costs incurred in the Process of earning revenues.
Ans. Matches.

3. Balance sheet is a statement of …… of a business at a specific movement of time.
Ans. Financial position

4. Assets & liabilities in a balance sheet (B/S) may be arranged either according to
…… order or ……. Order
Ans. Liquidity & permanency.

5. Financial statements disclose only …… facts.
Ans. Monetary.

6. P & L A/C is also called the ……
Ans. Income statement.

7. Rearrangement of figures is necessary for …… & ……
Ans. Analysis & interpretation.

Q7. Fill in the blanks:

1. Fund flow refers to changes in …….. capital.
2. Building sold on credit is …….. of funds.
3. Goods purchased on credit …….. inflow of fund.
4. Commission outstanding is …… of funds.
5. Any gain on the sale of non – current assets should be …… from the net profit for determining funds from operators.
6. Difference between C.A. & C.L is known as …….
7. Depreciation is sometimes treated as …… funds.

1. Working
2. A source
3.Does not result
4. An application
5. Deducted
6. Working capital
7. A source

Q8. True or False:

1. Purchase of stock in trade is an application of funds
2. A decrease in C.L. increases W.C.
3. Fund flow refers to change in long term funds.
4. The FFS shows changes in the individual items comprising W.C.
5. Fund flow analysis shows the position of business as on the closing date of business period.
6. W.C. is the different between F.A & C.A.
7. Cash or credit sales at a profit increase the W.C.
8. Purchase of fixed assets is a use of funds.
9. Amortization of preliminary expenses in a use of funds.
10. Payment of dividends is a use of funds
11. For FFS provision for taxation will be treated as an item of interest Source.

(1) T, (2) T, (3) F, (4) F, (5) F, (6) F, (7) F, (8) T, (9) F, (10) T, (11) T

Q9. Multiple Choices:

1. Increase in an asset due to purchase is
a) Source of funds
b) User of funds
c) None

2. Net profit earned plus non – W.C. expenses is equal to
a) Funk provided by operations.
b) Use of funds
c) Sinking fund

3. Tax paid is ___
a) Application of funds
b) Source of funds
c) No flow of funds

4. Stock at the end results in the
a) Application of fund
b) Source of fund
c) No flow fund

5. An increase in the share premium A/C is
a) An application of fund
b) A source of fund
c) No flow of fund

6. Sale of investments indicate
a) Source of fund
b) Application of fund
c) Change in C.A.

(1) B, (2) A, (3) A, (4) B, (5) B, (6) A

Financial Statement Analysis MCQs with Answers: Set-1

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