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ACCA Knowledge Level Ratio Analysis — practice questions

Explore 11 free Ratio Analysis questions in ACCA Knowledge Level Financial Accounting. Open each question or exercise to read its content, reference answers and available explanation.

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Ratio Analysis questions and exercises with answers

Showing questions 1–11 of 11.

In a vertical analysis of an income statement, each line item is expressed as a percentage of which figure?Read the answer and worked solution →Current assets are $911,000 and current liabilities are $364,000. What is the current ratio (to one decimal)?Read the answer and worked solution →Which current assets are excluded when computing the quick ratio?Read the answer and worked solution →Total liabilities are $1,275,000 and total stockholders' equity is $2,675,000. What is the ratio of liabilities to stockholders' equity (to two decimals)?Read the answer and worked solution →Income before income tax is $314,000 and interest expense is $55,000. What is the number of times interest charges are earned (to one decimal)?Read the answer and worked solution →Gross profit is $580,000 and sales are $994,000. What is the gross profit percentage (to one decimal)?Read the answer and worked solution →Net income is $248,000 and sales are $994,000. What is the profit margin (to one decimal)?Read the answer and worked solution →Dividends per share are $0.96 and the market price per share is $70.00. What is the dividend yield (to one decimal)?Read the answer and worked solution →Match the Statement (ACCA FA)Read the answer and worked solution →P&L or Position? (ACCA FA)Read the answer and worked solution →Finish the Term (ACCA FA)Read the answer and worked solution →

Worked practice questions

In a vertical analysis of an income statement, each line item is expressed as a percentage of which figure?

  1. Total assets
  2. Net income
  3. Sales
  4. Gross profit
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Correct answer: C. Sales

1. Vertical analysis reports each line item as a percentage of a base total. 2. On the income statement the base is sales, the largest value. 3. Total assets is the base used on the balance sheet, not the income statement. _Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §7.3.2 "Vertical Analysis", p.290_

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Current assets are $911,000 and current liabilities are $364,000. What is the current ratio (to one decimal)?

  1. 3.5
  2. 0.4
  3. 1.4
  4. 2.5
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Correct answer: D. 2.5

1. Current ratio = current assets / current liabilities. 2. = $911,000 / $364,000. 3. = 2.5. 4. Trap: 0.4 (option B) inverts the ratio, dividing liabilities by assets. _Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §7.3.4 "Current Ratio", p.294_

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Which current assets are excluded when computing the quick ratio?

  1. Cash and marketable securities
  2. Inventory and prepaid items
  3. Accounts receivable and cash
  4. Marketable securities and receivables
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Correct answer: B. Inventory and prepaid items

1. Quick assets include cash, accounts receivable, and marketable securities. 2. They exclude inventory and prepaid items, which take too long to convert to cash. 3. Therefore inventory and prepaid items are removed. _Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §7.3.4 "Quick Ratio", p.295_

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More Financial Accounting topics

Statement of Cash FlowsThe Mechanics of the Accounting ProcessInventory ValuationAsset, Liability and Equity AccountsFinancial StatementsAccounting EquationBonds PayableThe Accounting Equation