Management or OperatingManagement or Operating Ratios Test Ratios Test

This test consists of 10 questions This test consists of 10 questions designed to test your understanding of designed to test your understanding of how management performance is how management performance is measured.measured.

The links provide you with a choice of The links provide you with a choice of answer, along with explanations and answer, along with explanations and solutions.solutions.

You will need a calculator to complete You will need a calculator to complete this test.this test.

Question 1.Question 1.

A firm has a turnover of £365,000, and a A firm has a turnover of £365,000, and a gross profit of £126,000. What is the firms gross profit of £126,000. What is the firms GPM? GPM?

a. 34.5%a. 34.5%

b. £239,000b. £239,000

c. 28.9%c. 28.9%

Your answer is correct.

Wrong. Your are required to calculate GPM , not Gross Profit. Try Again

The formula is

Gross Profit times 100

Turnover 1

Try again.

Question 2.Question 2.

A Firm has a turnover of £2,600,000. Gross A Firm has a turnover of £2,600,000. Gross Profit of £1,900,000, and expenses of Profit of £1,900,000, and expenses of £1,200,000. What is the firms NPM?£1,200,000. What is the firms NPM?

A. 46.1%A. 46.1%

B. 36.8%B. 36.8%

C. 26.9%C. 26.9%

Wrong. You must first calculate Net Profit and then apply the NPM formula, which is

Net Profit times 100Turnover 1

Wrong. You must first calculate Net Profit and then apply the NPM formula, which is

Net Profit times 100Turnover 1

Correct.

Question 3.Question 3.

Which of the following are included in ‘Capital Which of the following are included in ‘Capital Employed’?Employed’?

1. Short Term Borrowing1. Short Term Borrowing

2. Shareholders Funds2. Shareholders Funds

3. Reserves3. Reserves

A. All ThreeA. All Three

B. 2 and 3B. 2 and 3

C. 1 and 3C. 1 and 3

Long term borrowing is included, but short term borrowing is not!

Correct.

Long term borrowing is included, but short term borrowing is not!

Question 4.Question 4.

ROCE measures?ROCE measures?

A. The effective management of liquidityA. The effective management of liquidity

B. The effective management of current assetsB. The effective management of current assets

C. The effective management of capitalC. The effective management of capital

Liquidity ratios are used for this purpose!

Wrong, remember we are looking at capital invested in the business

Correct, well done!

Question 5.Question 5.

Which of the following defines stock Which of the following defines stock turnover?turnover?

A.The average time taken to pay for stock and A.The average time taken to pay for stock and raw materials purchased.raw materials purchased.

B. The value average stock held, in relation to B. The value average stock held, in relation to total annual sales.total annual sales.

This refers to the creditors ratio. Stock turnover tells us about the relationship between stocks held and turnover.

Correct.

Question 6.Question 6.

A firm has a total capital employed of A firm has a total capital employed of £900,000, and a trading profit of £110,000. £900,000, and a trading profit of £110,000. What is the firms ROCE?What is the firms ROCE?

A. 12.2%A. 12.2%

B. 122%B. 122%

C. 8.18%C. 8.18%

Correct, well done!

The formula to use isTrading Profit times 100Capital Employed 1

The formula to use isTrading Profit times 100Capital Employed

Question 7.Question 7.

Which of the following is true?Which of the following is true?

A. A ROCE of less than base rates is A. A ROCE of less than base rates is desirable.desirable.

B. A ROCE of more than base rates is B. A ROCE of more than base rates is desirable.desirable.

Wrong. Firms would expect a ROCE of at least 2 or 3%greater than the cost of borrowing.

Correct. Firms would expect a ROCE of at least 2 or 3%greater than the cost of borrowing, but even higheris preferable.

Question 8.Question 8.

Trading profit can be defined as?Trading profit can be defined as?

A. Profit after Interest and TaxationA. Profit after Interest and Taxation

B. Profit before Interest and TaxationB. Profit before Interest and Taxation

C. Turnover less Cost of SalesC. Turnover less Cost of Sales

Wrong. Trading Profit ignores the effects of Interest and Taxation

Correct, well done!

Wrong. This calculation gives us Gross Profit.

Question 9.Question 9.

A firm has an average stock holding of A firm has an average stock holding of £116,000, and a Turnover of £596,000. £116,000, and a Turnover of £596,000. What is the firms Stock Turnover Ratio?What is the firms Stock Turnover Ratio?

A. 4.17 timesA. 4.17 times

B. 8.6 timesB. 8.6 times

C. 5.13 timesC. 5.13 times

Wrong, The formula is

Average stock times 100Turnover 1

Wrong, The formula is

Average stock times 100Turnover 1

Correct.

Question 10.Question 10.Which of the following firms is likely to have Which of the following firms is likely to have

the highest Stock Turnover Ratio?the highest Stock Turnover Ratio?

A. JewelersA. Jewelers

B. DIY StoreB. DIY Store

C. GreengrocersC. Greengrocers

Wrong, Likely to have the lowest.

Wrong. Probably in the middle of the 3

Correct. Likely to have a stock turnover ratio of 50 timesor even higher.

You have now completed the test. For further more detailed revision please use the case studies on

the ALoA web site.www.aloa.co.uk