Chapter 9 Self-test questions

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. The ability of an organization to meet its liabilities as they fall due is determined by:

Whether the organization has a current ratio of 2:1 or higher. correct incorrect

How high the gearing ratio is. correct incorrect

How quickly the sales made by the organization are turned into cash. correct incorrect

How much cash is in the organization's bank account. correct incorrect

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. Which of the following financial statement figures will be used in the calculation of the quick ratio? Please select all that apply.

Taxation repayable correct incorrect

Inventory correct incorrect

Accruals correct incorrect

The current portion of long-term borrowings correct incorrect

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. Liquidity is the ability of short term _______ to meet short term liabilities.

Your response

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. Liquidity ratios and working capital ratio assessments are built upon the information contained in the statement of profit or loss.

True correct incorrect

False correct incorrect

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. Match the ratio to the correct definition.

The £s of current assets per £ of current liabilities.

Current ratio Receivables days Debt ratio Interest cover

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The pence of liabilities per £ of assets.

Debt ratio Interest cover Receivables days Current ratio

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A measure of the average credit period taken by customers.

Debt ratio Current ratio Interest cover Receivables days

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A measure of an organization's ability to service its borrowings.

Interest cover Receivables days Current ratio Debt ratio

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. At its statement of financial position date, Paola Limited has current liabilities of £2,375,000 (including bank and other borrowings of £200,000) and non-current liabilities of £3,320,000 (including bank and other borrowings of £2,544,000). The company's equity is £3,430,000. Based on these figures, what is Paola Limited's gearing %?

5.83% correct incorrect

74.17% correct incorrect

80.00% correct incorrect

96.79% correct incorrect

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. Which of the following statements are false? Please select all that apply.

An organization with a quick ratio of less than 1:1 will fail. correct incorrect

An interest cover of less than 1:1 indicates that borrowings are affordable. correct incorrect

The shorter the cash conversion cycle, the better working capital is being managed and the more readily cash is available with which to meet liabilities. correct incorrect

Payables days are calculated by dividing trade payables by revenue and multiplying by 365 days. correct incorrect

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. The ____________= inventory days + receivables – payables days.

Your response

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. The cash flow cycle of retailing companies is longer than the cash flow cycle of manufacturing companies.

True correct incorrect

False correct incorrect

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. At its statement of financial position date, Genoa Limited has current assets of £850,000 (including inventory of £160,000), current liabilities of £750,000 (including bank borrowings of £125,000), non-current liabilities of £1,200,000 (including bank borrowings of £600,000) and equity of £2,300,000. Based on these figures, what is Genoa Limited's quick ratio?

0.32:1 correct incorrect

0.92:1 correct incorrect

1.10:1 correct incorrect

1.13:1 correct incorrect

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. The financial statements of Perugia Limited for the year ended 31 December 2021 show revenue of £15,000,000 and cost of sales of £9,500,000. At 31 December 2021, the statement of financial position presents the following figures: inventories: £1,171,000; trade receivables: £1,233,000; and trade payables: £1,562,000. To the nearest whole day, trade receivables days based on these figures are:

30 correct incorrect

38 correct incorrect

45 correct incorrect

47 correct incorrect

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. Which of the following factors will be taken into account in the assessment of long term solvency and financial stability? Please select all that apply.

Consistency of future demand for products and services. correct incorrect

Interest cover. correct incorrect

The strength of operating cash inflows in the statement of cash flows. correct incorrect

The timing of payments for current liabilities. correct incorrect

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.

	£000
Inventory	3,300
Trade payables	4,350
Trade receivables	5,890
Revenue	44,760
Cost of sales	29,100

Based on the above figures, what are the inventory days?

30.78 correct incorrect

38.09 correct incorrect

45.18 correct incorrect

50.50 correct incorrect

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. The financial statements of Erica Limited for the year ended 31 July 2021 show operating profit of £3,450,000, finance expense of £500,000, finance income of £320,000 and profit before tax of £3,295,000. What is Erica Limited's interest cover for the year ended 31 July 2021?

6.59 times correct incorrect

6.90 times correct incorrect

7.54 times correct incorrect

10.78 times correct incorrect

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. Adam Limited presents the following figures in its financial statements for the year ended 31 August 2021:

	£000
Inventory	3,300
Trade payables	4,350
Trade receivables	5,890
Revenue	44,760
Cost of sales	29,100

 

Based on the above figures, what are Adam Limited's payables days?

35.47 correct incorrect

41.39 correct incorrect

48.03 correct incorrect

54.56 correct incorrect