Practice Questions Flashcards
1
Q
Gross profit margin
A
Gross profit
Over
Revenue
Should remain constant unless there is:
• cut-off error
• change in strategy
2
Q
Net margin/operating margin
A
Profit before interest and tax
Over
Revenue
NB if overheads are controlled well, net margin will increase
3
Q
Current ratio
A
Current assets : current liabilities
Doesn’t necessarily highlight cash flow problems
4
Q
Quick ratio
A
Same as current ratio but excludes inventories
5
Q
Receivable days
A
Trade receivables
Over
Revenue
X 365
Increase: negative impact on cash
Risk of bad debts
6
Q
Payable days
A
Trade payables
Over
Credit purchases (use CoS)
X 365
Increase: good for cash in short-term
Can compromise relationships with suppliers > indicates you can’t pay
7
Q
Stratification
A
Decreases sample size
