Ratios in Accounting Trivia Quiz

Answer: current liabilities

Current assets are usually larger than the current liabilities in a business, so this ratio is usually over 1. A generally acceptable level for businesses is between 1.5:1 and 2:1. Anything higher is deemed to be a bad use of assets, and anything lower than 1:1 may mean the business faces liquidity problems in the future. Of course, each business has its own methods, supermarkets, for example, can operate at lower current ratio levels.

Answer: stock (inventories)

Stock(inventories) is taken away because this is seen as the least liquid of all of the current assets, as it is more difficult to sell stock to obtain money. The acid test ratio in full is (current assets-stock)/current liabilities :1. Generally, the acceptable level for many businesses is 1:1, although again depending on the sector each company operates in, this will vary.

These two ratios are the liquidity ratios.

Answer: Value of stock

Fixed costs, variable costs and total costs all deal with break-even charts rather than stock turnover. Alternatively, the value of stock can be divided by cost of sales, and then multiplied by 365 days to give a value in days for how long a company keeps its stock on average.

Answer: turnover

Debtor days are difficult for businesses to deal with. If they don't give enough time for debtors to pay them, then debtors may look elsewhere for better deals, but if they give them too much time then the company may experience cash flow problems.

Answer: Both of them

Total assets refer to fixed assets and current assets, whereas net assets refers to fixed assets and current assets minus current liabilities. Increasing asset turnover usually indicates (although not always) that a business' efficiency is increasing. The last three ratios are all deemed to be financial efficiency ratios.

Answer: Percentage

Gearing in a business is calculated by dividing long term borrowing by equity and multiplying the result by 100%. Again, there are benefits to being highly geared (over 100%) as a business, and being very low geared (less than 100%). Highly geared companies are usually operating with a greater risk factor than low geared businesses. Alternatively, gearing can be worked out by dividing fixed cost capital over long term capital.

Answer: Sales Turnover

The difference between gross profit and net profit is that gross profit only looks at profits and revenue made before taxation and interest payments. Net profit takes these into account.

Answer: 3%

Most investors would get between 1% and 5% as a return on their investment. A 300% or 100% dividend is ridiculously high, and the 0.00000003% is ridiculously low. Of course, it is not inconceivable that this would happen, but it is very unlikely.

Answer: Return

ROCE stand for return on capital employed. This ratio is used by businesses to try and calculate how efficiently its assets are gaining profit for the company. It can also be called ROACE, which is Return on Average Capital Employed.

Answer: Fixed costs

Contribution per unit is defined by subtracting the variable cost for each unit from the selling price for each unit. It is considered a good method, but doesn't take into account discounted products, and it can only be used for one product.