Which of the following is the formula for gross profit margin?
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A. (Gross Profit / Sales) x 100 The gross profit margin measures the percentage of revenue that exceeds the cost of goods sold, so it uses gross profit and sales.
A business had sales of £200,000 and cost of goods sold of £120,000. What is the gross profit margin?
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A. 40% Gross profit is £200,000 - £120,000 = £80,000. Gross profit margin is (£80,000 / £200,000) x 100 = 40%.
Which ratio indicates a business's ability to meet its short-term liabilities with its most liquid assets?
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B. Acid test ratio The acid test ratio measures liquidity by comparing current assets minus inventory to current liabilities.
How can a business improve its liquidity?
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B. Reduce trade payables Reducing trade payables decreases current liabilities, improving liquidity ratios like the current and acid test ratios.
What is the primary reason for the difference between cash and profit?
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C. Timing differences in cash flows and accruals Profit is calculated on an accrual basis, while cash flows occur at different times, leading to differences.
A business's gross profit increased from £50,000 to £60,000, but its profit for the year decreased. What could cause this?
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C. An increase in other expenses If other expenses increased by more than the £10,000 increase in gross profit, the profit for the year could decrease.
Which of the following can affect gross profit for the year?
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D. All of the above Changes in selling and purchasing prices, as well as the valuation of inventory, can all impact gross profit.
How can a business improve its profitability?
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D. All of the above Increasing sales volume, reducing cost of goods sold, and increasing selling prices can all improve profitability.
What is the main purpose of comparing accounting ratios over different years?
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A. To identify trends and patterns in the business's performance Comparing ratios over time helps identify trends, such as improving or deteriorating liquidity or profitability.
A business has a current ratio of 1.5:1. What does this indicate?
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B. The business has enough current assets to cover its current liabilities A current ratio greater than 1 indicates that current assets exceed current liabilities.
Which ratio measures how efficiently a business uses its inventory?
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C. Inventory turnover Inventory turnover measures how quickly a business sells and replaces its inventory.
A business has an inventory turnover of 5 times per year. What does this mean?
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A. The business sells its inventory 5 times a year An inventory turnover of 5 means the business sells and replaces its inventory 5 times in a year.
How does an increase in other income affect profit for the year?
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C. It increases profit Other income, such as interest or rent received, increases the business's overall profit.
Which of the following is a reason why cash and profit might differ?
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D. All of the above Depreciation, changes in inventory, and changes in trade receivables can all cause differences between cash and profit.
A business has a profit margin of 10%. Its sales are £300,000. What is its profit for the year?
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A. £30,000 Profit for the year is (Profit Margin / 100) x Sales = (10 / 100) x £300,000 = £30,000.