Chapter MCQ Test 2 — Accounting Ratios
10 Questions • 12 min • Chapter MCQ
12:00
Question 1 of 10
Current assets Rs 5,00,000 (inventory Rs 1,50,000, prepaid Rs 50,000); current liabilities Rs 2,50,000. The quick ratio is:
1.2 : 1
2 : 1
1 : 1
1.4 : 1
Explanation: Quick assets = 5,00,000 − 1,50,000 − 50,000 = 3,00,000; ÷ 2,50,000 = 1.2:1.
Question 2 of 10
A current ratio of 5:1 would usually be judged:
Possibly too high — funds may be idle in stock/debtors
Ideal
Dangerously low
Impossible
Explanation: An excessively high ratio can indicate over-investment in current assets rather than strength.
Question 3 of 10
Shareholders' funds Rs 8,00,000, long-term debt Rs 12,00,000, total assets Rs 22,00,000. Debt-equity and proprietary ratios are:
1.5 : 1 and 0.36
0.67 : 1 and 0.36
1.5 : 1 and 0.55
1 : 1 and 0.5
Explanation: D/E = 12/8 = 1.5:1; proprietary = 8,00,000/22,00,000 = 0.36.
Question 4 of 10
Why is the quick ratio a stricter test of liquidity than the current ratio?
It excludes the least-liquid current assets (inventory and prepaid expenses)
It includes more assets
It ignores liabilities
It uses sales
Explanation: By removing stock and prepaid items, it counts only assets quickly convertible to cash.
Question 5 of 10
Revenue Rs 24,00,000; average trade receivables Rs 4,00,000 (all credit sales). The trade receivables turnover and collection period are:
6 times; about 2 months
4 times; 3 months
6 times; 1 month
3 times; 4 months
Explanation: Turnover = 24,00,000/4,00,000 = 6; collection period = 12/6 = 2 months.
Question 6 of 10
Operating ratio is 78%. The operating profit ratio is:
22%
78%
122%
Cannot tell
Explanation: Operating ratio + operating profit ratio = 100%, so 100 − 78 = 22%.
Question 7 of 10
PBIT Rs 3,00,000; interest on long-term debt Rs 60,000. The interest coverage ratio is:
5 times
0.2 times
6 times
3 times
Explanation: 3,00,000 / 60,000 = 5 times — profit covers interest 5 times over.
Question 8 of 10
Which change would IMPROVE the current ratio of a firm with a ratio above 1?
Collecting cash from a debtor (one current asset replaces another)
Paying a creditor with cash
Buying stock on credit
Taking a short-term loan
Explanation: Paying a current liability with a current asset (equal fall in both) raises a ratio that is already above 1.
Question 9 of 10
Net profit ratio is rising but ROI is falling. A plausible reason is that:
Capital employed grew faster than profit (assets used less efficiently)
Sales fell
Interest disappeared
It is impossible
Explanation: ROI depends on PBIT relative to capital employed; expanding capital faster than profit lowers ROI even if margins rise.
Question 10 of 10
A high inventory turnover ratio generally indicates:
Stock is sold and replaced quickly (efficient)
Stock is piling up
Low sales
High debt
Explanation: Higher turnover means inventory moves fast, a sign of efficient stock management and demand.