FR C Analysing and interpreting financial statements

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

• 1 1.8%
• 2 8%
• 3 13.5%
• 4 18%

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

• 1 15%
• 2 18%
• 3 11.5%
• 4 6.7%

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

• 1 Seasonal trading or major asset purchases near the year end
• 2 Because ratios are not used
• 3 Because the financial statements are audited
• 4 Because accounting is always accurate

What is window dressing?

• 1 Cleaning the premises
• 2 Arranging transactions near the year end to improve the appearance of the statements
• 3 Revaluing every asset
• 4 Adding extra audit procedures

Which of these is a limitation of ratio analysis?

• 1 Ratios are always comparable
• 2 Ratios explain the causes of changes
• 3 Ratios use future data
• 4 Different entities use different accounting policies

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

• 1 Share price
• 2 Value for money and the quality of service
• 3 Earnings per share
• 4 Dividend cover

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

• 1 Lower risk
• 2 A guaranteed increase in dividends
• 3 No change in risk
• 4 Higher financial risk, because interest must be paid whatever the profit