Your contributions should be thoughtful and developed.  Answer all parts of the question and use concepts from the course materials.  Use a professional style of communication, with attention to gra

1. The type of analysis being carried out when a company's gross profit ratio for three years is graphed and compared with the average industry gross profit ratio calculated over the same time period is:

1. parallel analysis

2. trend analysis

3. vertical analysis

4. gearing analysis

1. Which user would be interested in examining the results of the profitability and gearing ratios?

1. Potential investors

2. Long-term lenders

3. All of the others

4. Shareholders

1. Which of these is not a limitation of ratio analysis?

1. One ratio is not enough information to make an overall judgement

2. Different accounting methods used by competitors

3. Firms of different size cannot be compared.

4. All are limitations

1. A company with a higher level of gearing will have:

1. a high liabilities/total assets ratio.

2. D) Both A and B

3. B) a lower owners' equity/total assets ratio.

4. C) a higher owners' equity/total assets ratio

1. On what does the adequacy of the gross profit margin depend?

1. selling price

2. total expenses

3. buying price

4. Both A and B

1. If the price-earnings ratio is 8 times, the earnings yield is:

1. 80%

2. 10 %

3. 8%

4. 12.5%

1. Why may management justifiably hesitate to close a service:

1. all of the other answers

2. because the loss made in providing one service can be compensated by the profit made by providing other services

3. because closing one service may lead to a decline in the demand of other services

4. because of emotional attachment to providing the service

1. Which of these is not an advantage of using borrowed funds to finance a business?

1. Borrowing can be used to boost returns to owners, as long as the return on the funds exceeds the cost of interest

2. Interest on borrowings is tax deductible

3. Interest on borrowing is a legal commitment that must be met

4. Lenders do not dilute ownership interest in the business

1. Where several products are produced and there is a scarce factor, what is the rule for deciding on the optimum product mix?

1. produce as much as can be sold of the product with the highest contribution margin per unit of scarce factor, and use any remaining resource to produce the product with the next highest contribution margin per unit of scarce factor etc

2. produce only the product with the highest contribution margin

3. produce equal quantities of all products

4. produce only the product with the highest contribution margin per unit of scarce factor

1. Which of these would be considered a fixed cost?

1. Laundry costs to wash towels used by a hairdresser

2. Cost of fuel for a transport company

3. Materials used in production

4. Insurance premium

1. A firm has total assets of $900,000 and total liabilities of $400,000. There are no preference shareholders. Earnings before interest and taxes are $100,000. Interest is $21,000 and taxes are $34,000. The return on ordinary shareholders' funds is:

1. 12.5%

2. 8%

3. 9%

4. 3.8%

1. Which of the following businesses would you expect to have the highest current ratio?

1. Manufacturer

2. Service business that sells for cash

3. Retailer

4. Service business that sells on credit

1. From the following information, calculate Todd Ltd's rate of return on ordinary shareholders' funds:

Ordinary share capital $600,000.

Retained profits and reserves $200,000.

180,000 fully paid $2.00 10% Preference shares.

Net profit after tax and before preference dividend $276,000

1. 26%

2. 30%

3. 20%

4. 16%

1. High operating gearing refers to:

1. an activity with relatively high fixed costs compared with its variable costs.

2. an activity with fixed costs equal to its variable costs.

3. an activity with relatively high variable costs compared with its fixed costs.

4. an activity with relatively low fixed costs compared with its variable costs

1. Which of these is not an advantage of a shorter inventory turnover period?

1. It means less storage space is needed for inventory.

2. It means fewer funds are tied up in inventory so more are available for use in the business

3. It means that management can have the cost advantage of buying in bulk.

4. It means that inventory is less likely to become obsolete or out of date.

1. If the sales output of a firm increases, what will be the impact on the break-even point?

1. Reduce.

2. No change

3. Equal the margin of safety

4. Increase

1. The organisation more likely to be highly operationally geared is:

1. Takeaway food outlet

2. Internet service provider

3. Hairdresser

4. Vehicle manufacturer

1. A business may prefer to make a product that it could subcontract at a cheaper price because:

1. they may be concerned that having gained their business, the subcontractor could increase the price charged

2. by subcontracting the business, they may lose control over quality

3. all of the other answers

4. by subcontracting the business, they may find supply is less reliable

1. If current assets exceed current liabilities, the payment of accounts payable will:

1. decrease the current ratio

2. do none of the others

3. increase the current ratio

4. increase the level of cash held