FR C Analysing and interpreting financial statements

Written by Fahad Mirza (ACCA)

ACCA · Financial Reporting · 7 questions

Name: ____________________   Date: ____________

1. An entity has an operating margin of 12 percent and an asset turnover of 1.5 times. What is the return on capital employed?

   • A 1.8%
   • B 8%
   • C 13.5%
   • D 18%

2. An entity's operating margin falls to 10 percent and its asset turnover stays at 1.5 times. What is the ROCE?

   • A 15%
   • B 18%
   • C 11.5%
   • D 6.7%

3. Why might year-end figures not be representative of the whole period?

   • A Seasonal trading or major asset purchases near the year end
   • B Because ratios are not used
   • C Because the financial statements are audited
   • D Because accounting is always accurate

4. What is window dressing?

   • A Cleaning the premises
   • B Arranging transactions near the year end to improve the appearance of the statements
   • C Revaluing every asset
   • D Adding extra audit procedures

5. Which of these is a limitation of ratio analysis?

   • A Ratios are always comparable
   • B Ratios explain the causes of changes
   • C Ratios use future data
   • D Different entities use different accounting policies

6. Which measure is most relevant to a not-for-profit entity?

   • A Share price
   • B Value for money and the quality of service
   • C Earnings per share
   • D Dividend cover

7. Gearing rises because an entity takes on more debt. What does this mean for shareholders?

   • A Lower risk
   • B A guaranteed increase in dividends
   • C No change in risk
   • D Higher financial risk, because interest must be paid whatever the profit