Test Questions.

1.	The acid test ratio is used to identify an organisation’s:
A.	Profitability
B.	Use of assets
C.	Ability to meet its debts
D.	Long-term liabilities
2.	During a trading period, the rate of stock turnover is best described as:
A.	Total revenue from monthly sales of stocks
B.	The average level of stocks held per month
C.	The average cost per month of holding stocks
D.	The number of times that stocks levels are replaced
3.	The ability of a firm to control credit can be measured by:
A.	Creditors divided by sales
B.	Debtors divided by daily sales
C.	Profits divided by debtors
D.	Debtors divided by creditors
4.	Calculating the return on capital employed by a company provides information on:
A.	Profitability
B.	How efficiently assets are used
C.	Liquidity
D.	Capital structure
5.	All of the following are financial performance ratios used by business organisations except:
A.	Return on net assets
B.	Asset turnover
C.	Stock turnover
D.	Acid test ratio
	Questions 6 – 8 are based on the following jumbled financial information for an organisation over a 12-month period (£000): Turnover 365 Fixed assets 400 Current assets 200 Current liabilities 50 Gross profit 90 Overheads 30 Debtors 60
6.	The gross profit margin is
	A. 45%	B. 28.5%	C. 15%	D. 24.7%
7.	The return on capital employed
	A. 15%	B. 22.5%	C. 10%	D. 16.4%
8.	The average debt collection period is
	A. 60 days	B. 6 days	C. 10 days	D. 75 days
9.	The most likely reason for an adverse variance between the overheads budget and outturn is:
A.	A cut in the price of electricity
B.	A machine breakdown on the shop-floor
C.	An increase in the standing charge for telephone lines
D.	The purchase of a new, more efficient photocopier
10.	If the budget for a particular business activity is zero-based, it means that:
A.	The business has planned not to spend any more money on it
B.	It is based on past information adjusted for inflation
C.	It is fixed until the end of the budget period
D.	It ignores past information in its preparation
11.	A firm will wish to monitor its solvency because:
A.	It reveals how much profit it is making
B.	It reveals its ability to cover its debts
C.	It reveals its tax liabilities
D.	It reveals information on non-financial targets
12.	Explain how and why business organisations monitor their performance using accounting information. Use examples to illustrate your answer.

Case Study ‘Business Performance’

Tasks:

Obtain the final accounts of two large public limited companies of your choice in the same industry.

You have been asked to advise a large bank that is keen to invest money in the shares of these companies. You are to produce a report containing the following information:

· A brief history of each company

· Objectives of each company

· Evaluation of the financial performance of each company in terms of liquidity, sales, profits, costs, stock turnover

· Whether each organisation achieved its targets

· Reasons for changes in the performance of each company over the two-year period contained in their accounts

· An inter-firm performance comparisons and an evaluation of any differences

· Your recommendations to the bank – should they buy shares in one or both of these companies? Justify your choice.

Use ratio analysis to examine financial performance in your report. Make sure that any calculations are set out clearly and explained. To calculate financial ratios from information contained in company account, you may use a computer spreadsheet.

You should also consider any other means of measuring business performance, including performance in meeting non-financial objectives.

Also comment on how other factors, including the economic climate, government economic policy, and exchange rates may have affected performance.

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