Spot the Lie: Ratios (ACCA FA)

Exercise and reference answers

Questions

1. False statement

   Gross profit margin is profit for the year over revenue.

   Statements

   1. Current ratio is current assets divided by current liabilities.
   2. The quick ratio excludes inventory.
   3. Gross profit margin is profit for the year over revenue.

2. False statement

   A higher inventory days figure always means better liquidity.

   Statements

   1. A higher inventory days figure always means better liquidity.
   2. Gearing measures the level of debt finance.
   3. Receivables days estimate how long customers take to pay.

3. False statement

   Net profit margin is always higher than gross profit margin.

   Statements

   1. ROCE relates profit to capital employed.
   2. Net profit margin is always higher than gross profit margin.
   3. The acid test ratio is a measure of liquidity.

Instructions

Tap the false ratio statement.