Chapter 9 Multiple-choice questions

. If Dan Ltd issues shares with a £1 nominal value, for £1.50 per share, then the gearing proportion and the current ratio will be affected as follows:

Gearing will increase and the current ratio will reduce.

Gearing will reduce and the current ratio will reduce.

Gearing will reduce and the current ratio will increase.

Gearing will increase and the current ratio will increase.

. A common definition for gearing is:

Ordinary share capital plus reserves, divided by long-term loans.

Short-term loans divided by reserves.

Long-term loans, divided by ordinary share capital plus reserves plus long-term loans.

Ordinary share capital divided by short term loans.

. An extract from Joy Plc's Statement of financial position as at 30 September 2024 is given below:

The gearing proportion at 30 September 2024 was:

76%.

100%.

159%.

19%.

. Ruth Plc has a gearing proportion of 40% at 30 September 2022. Which of the following statements is true?

An ordinary share issue will increase the gearing proportion.

A preference share issue will reduce the gearing proportion.

Repayment of a long-term loan will increase the gearing proportion.

Repayment of a short-term loan will not affect the gearing proportion.

. Two competitor companies, Pan Ltd and Puck Ltd, have the following ratios at 31 December 2024:

Which of the following statements is true?

Pan's capital structure is less risky than Puck's but it can cover its interest obligations more easily.

Pan's capital structure is less risky than Puck's and it is less able to cover its interest obligations.

Puck's capital structure is more risky than Pan's and it is less able to cover its interest obligations.

Puck's capital structure is less risky than Pan's but it can cover its interest obligations more easily.

. Steve Plc has the following information for the year to 30 June:

What are the earnings per share for Steve Plc as at 30 June?

23 pence.

14 pence.

20 pence.

17 pence.

. Steve Plc has the following information for the year to 30 June:

What is the price to earnings ratio for Steve Plc as at 30 June?

0.8 times

1.9 times

27 times

8.3 times

. Steve plc has the following information for the year to 30 June:

What is the dividend yield ratio for Steve Plc as at 30 June?

23%

3.3 times

3.2%

6%

. Steve Plc has the following information for the year to 30 June:

What is the dividend cover ratio for Steve Plc as at 30 June?

1.4 times

25 times

3.8 times

3%

. Which of the following is not a limitation of ratio analysis?

Differences in accounting policies between companies may detract from the value of inter-firm comparisons.

Ratios do not provide explanations for changes found.

Financial statements and accounting ratios can be distorted by as a result of 'one-off' large transactions.

Ratios highlight underlying trends.

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