Objective Questions and Answers of Financial Management

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Objective Questions and Answers of Financial Management 1. State whether each of the following statements is True (T) or False(F) (i) Financial statements are an important source of information t... o shareholders and stakeholders. (ii) Both the BS and the IS shows the financial position of fen at the end of the year. (ii) BS of a company must be prepared in the horizontal format only. (iv) Preparation of Profit & Loss Appropriation A/c is a requirement under the Companies Act, 1956. (v) Ratio Analysis is the only technique of analysis of financial statements. (vi) Methodical presentation of financial statements helps in Nation of various ratios. (vii) In Common Size Statements, each item is expressed as a percentage of some common items (total). (viii) Trend Percentage Analysis helps in Dynamic Analysis. (ix) Liquidity Ratios help in analysing the cash position of the firm. (x) In calculation of Acid Test Ratio, Inventory is included in current assets. (xi) Working Capital Turnover Ratio may be classified as an Activity Ratio. (xii) Debt-Equity Ratio is a measure of long-term solvency of a firm. (xiii) GP Ratio and NP Ratio give the profitability of the firm from the point of view of the shareholders. (xiv) Return on Equity and Earnings per Share are one and the same thing. (xv) DU PONT Analysis looks into the elements of profits. (xvi) Ratio Analysis provides the solution to the financial problems. Answers: (i) T, (ii) F, (iii) F, (iv) F, (v) F, (vi) T, (vii) T, (viii) T, (ix) F, (x) F, (xi) T, (xii) T, (xiii) F, (xiv) F, (xv) T, (xvi) F.] 2. Multiple Choice Questions: 1. Accounting Ratios are important tools used by (a) Managers, (b) Researchers,(c)Investors, (d) All of the above 2. Net Profit Ratio Signifies:(a) Operational Profitability, (b) Liquidity Position,(c) Big-term Solvency,(d)Profit for Lenders.- 2 - 3. Working Capital Turnover measures the relationship of Working Capital with: (a)Fixed Assets,(b)Sales,(c)Purchases,(d)Stock. 4. In Ratio Analysis, the term Capital Employed refers to: (a)Equity Share Capital,(b)Net worth,(c)Shareholders' Funds, (d)None of the above. 5. Dividend Payout Ratio is: (a)PAT Capital, (b)DPS ÷ EPS,(c) Pref. Dividend ÷ PAT, (d) Pref. Dividend ÷ Equity Dividend. 6. DU PONT Analysis deals with: (a) Analysis of Current Assets, (b)Analysis of Profit, (c)Capital Budgeting, (d) Analysis of Fixed Assets. 7. In Net Profit Ratio, the denominator is:(a)Net Purchases, (b)Net Sales, (c) Credit Sales, (d) Cost of goods sold. 8. Inventory Turnover measures the relationship of inventory with: (a) Average Sales, (b)Cost of Goods Sold, (c)Total Purchases, (d) Total Assets. 9. The term 'EVA' is used for: (a)Extra Value Analysis, (b)Economic Value Added,(c)Expected Value Analysis,(d)Engineering Value Analysis. 10. Return on Investment may be improved by: (a)Increasing Turnover,(b) Reducing Expenses,(c)Increasing Capital Utilization,(d)All of the above. 11. In Current Ratio, Current Assets are compared with: (a)Current Profit, (b)Current Liabilities,(c)Fixed Assets, (d)Equity Share Capital. 12. ABC Ltd. has a Current Ratio of 1.5: 1 and Net Current Assets of Rs. 5,00,000. What are the Current Assets? (a)Rs. 5,00,000, (b)Rs. 10,00,000, (c)Rs. 15,00,000, (d) Rs. 25,00,000 13. There is deterioration in the management of working capital of XYZ Ltd. What does it refer to? (a)That the Capital Employed has reduced,(b)That the Profitability has gone up,(c)That debtors collection period has increased,(d)That Sales has decreased. 14. Which of the following does not help to increase Current Ratio? (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. 75. Debt to Total Assets Ratio can be improved by: (a)Borrowing More,(b)Issue of Debentures,(c)Issue of Equity Shares,(d)Redemption of Debt. 16. Ratio of Net Income to Number of Equity Shares known as:- 3 - (a)Price Earnings Ratio, (b) Net Profit Ratio,(c)Earnings per Share, (d) Dividend per Share. 17. Trend Analysis helps comparing performance of a firm (a)With other firms,(b)Over a period of firm,(c)With other industries,(d) None of the above. 18. A Current Ratio of Less than One means: (a)Current Liabilities < Current Assets,(b)Fixed Assets > Current Assets,(c)Current Assets < Current Liabilities, (d) Share Capital > Current Assets. 19. 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? (a)20%, (b) 50%, (c)10%, (d)40%. 20. 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. (a) Rs. 4,00,000, (b)Rs. 2,50,000,(c)Rs. 80,00,000, (d)Rs. 83,33,333. 21. Suppliers and Creditors of a firm are interested in(a)Profitability Position,(b)Liquidity Position,(c)Market Share Position, (d) Debt Position. 22. Which of the following is a measure of Debt Service capacity of a firm? (a)Current Ratio, (b)Acid Test Ratio,(c) Interest Coverage Ratio,(d) Debtors Turnover. 23. Gross Profit Ratio for a firm remains same but the Net Profit Ratio is decreasing. The reason for such behavior could be: (a) Increase in Costs of Goods Sold, (b)If Increase in Expense, (c) Increase in Dividend,(d)Decrease in Sales. 24. Which of the following statements is correct? (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. 25. Debt to Total Assets of a firm is .2. The Debt to Equity boo would be: (a) 0.80, (b)0.25, (c) 1.00, (d)0.75 26. Which of the following helps analysing return to equity Shareholders? (a) Return on Assets, (b) Earnings Per Share, (c) Net Profit Ratio, (d)Return on Investment. 27. Return on Assets and Return on Investment Ratios belong to: (a) Liquidity Ratios,(b)Profitability Ratios,(c)Solvency Ratios, (d)Turnover.- 4 - 28. XYZ Ltd. has a Debt Equity Ratio of 1.5 as compared to 1.3 Industry average. It means that the firm has: (a) Higher Liquidity, (b)Higher Financial Risk,(c)Higher Profitability,(d)Higher Capital Employed. 29. Ratio Analysis can be used to study liquidity, turnover, profitability, etc. of a firm. What does Debt-Equity Ratio help to study? (a)Solvency,(b)Liquidity,(c)Profitability,(d) Turnover, 30. In Inventory Turnover calculation, what is taken in the numerator? (a) Sales,(b)Cost of Goods Sold,(c)Opening Stock,(d) Closing Stock. [Answers : 1. (d); 2. (a) 3. (a); 4. (d); 5. (b); 6. (b); 7. (b); 8. (b); 9. (b); 10. (d); 11. (b); 12. (c); 13. (c); 14. (d); 15. (d); 16. (c); 17. (b); 18. (c);19. (a); 20. (c);21. (b);22. (c);23. (b);24. (d);25. (b);26. (b); 27. (b); 28. (b); 29. (a); 30. (b)]. [Show More]

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