Tag: activity (or turnover) ratios

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Questions Related to activity (or turnover) ratios

Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

In response to market expectations, the credit period has been increased from 45 days to 60 days. This would result in a _____________.

  1. Decrease in sales

  2. Decrease in debtors

  3. Increase in bad debts

  4. Increase in average collection period
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Credit policy of an organization consists of various elements like cash discount, collection period etc. Collection period means the period of credit allowed to the customer by the organization against the credit sales.


If the credit period is increased from 45 days to 60 days, this will result more blockage of funds and will increase in average collection period.

Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

Securitization is related to conversion of _____________.

  1. Receivables

  2. Stock

  3. Investments

  4. Creditors
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Accounts receivables represents the amount due from the customers to whom organization has done sales. Recovery of money from receivables can take a larger time which depends on the credit policy. 


Organization can convert the receivable in cash by doing the securitization. In such case, receivables are converted in to securities and sold to an investor who will provide immediate cash to the organization.
Securitization allows company to get immediate cash rather than waiting for payment from the customers. By this organization can pass the risk of non payment to investors. 

Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

When opening stock is $Rs.50,000$, closing stock is $Rs 60,000$ and the cost of goods sold is $Rs.2,20,000$, the stock turnover ratio is _________.

  1. 2 times

  2. 3 times

  3. 4 times

  4. 5 times
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Stock turnover ratio = Cost of goods sold/ average inventory

Cost of goods sold = $Rs.2,20,000$
Average Inventory= [Opening inventory + Closing Inventory]/$2$
                               = [$50000 + 60000$] / $2$
                               = $Rs. 55000$
Now,
Stock turnover ratio = $220000/ 55000$
                                  = $4$ times.

Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

If stock turnover ratio = $6$ times; Average stock = $Rs.8,000$; Selling price = $25$% above cost. What is the amount of gross profit?

  1. $Rs.2,000$

  2. $Rs.4,000$

  3. $Rs.10,000$

  4. $Rs.12,000$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Stock turnover ratio = Cost of goods sold/Average inventory

                   $6$    = Cost of goods sold/ $8000$
Cost of goods sold  = $Rs. 48000$
Selling price = $25$ % above cost
Therefore Gross profit = Cost of goods sold x $25$%
                                      = $ 48000$ x $25$%
                                      = $Rs. 12000$

Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

Given below are two statements, identify the correctness of the following:
I. Activity ratios show where the company is going.
II. Balance sheet ratios show how the company stands.

  1. I is correct, but II is wrong

  2. Both I and II are correct

  3. I is wrong, but II is correct

  4. Both I and II are wrong
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Activity ratios are used to assess the efficiency with which the firm manages and utilises  its assets. These ratios usually compare the revenue growth with respect to the asset deployed giving an idea of where the company is headed, towards growth or decline.

Balance sheet ratios are those in which the variables used are those which are present in the balance sheet. A balance sheet is a statement which shows a picture of how the company stands as on a particular date and so the balance sheet ratios carry out the same task.

Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

Calculate the creditor's turnover ratio from the following data:
Credit purchase during the year = $Rs. 12,00,000$
(Creditor + bills payables) in the beginning of year = $Rs. 4,00,000$
(Creditor + bills parables) at the end of year = $Rs. 2,00,000$

  1. 6 times

  2. 4 times

  3. 2 times

  4. 5 times
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Average accounts payable = (Rs. 4,00,000 + Rs. 2,00,000)/2

                                              = Rs. 3,00,000
Credit turnover ratio = Net credit purchases/Average accounts payable
                                   = Rs. 12,00,000/Rs. 3,00,000
                                   = 4 Times

Multiple choice elements of accounts ratio analysis activity (or turnover) ratios accounting ratio's accounting ratios

Given information is as follows:
Total assets turnover = $3$ times
Net profit margin = $10\%$
Total assets  = $Rs.2,00,000$
The Net profit is                      .

  1. $Rs.20,000$

  2. $Rs.30,000$

  3. $Rs.50,000$

  4. $Rs.60,000$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Total assets turnover ratio = Sales / Total assets

                                 $3$ = Sales / $200000$
Therefore, Sales = $Rs. 600000$
Net profit margin = [Net profit / Sales] x $100$
               $10/100$ = [Net profit / $600000$] x $100$
Therfore Net profit = $Rs. 60000$