Quiz Result (17)

Diploma in Business Administration
Ratios and Returns
Quiz Result
Quiz Completion Time : 00:10:48
Wrong/Skipped
Right Answer
Your Score : 50%
Passing Score : 50%
Your Strong Areas:
Lesson - Return on Capital Employed (ROCE)
Lesson - Gearing
Lesson - Price Earning Ratio (PE)
Lesson - Interest Coverage Ratio
1. Long-term debentures and Mortgages are examples of _____________.
Your Answer : Debt
Description : Long-term debentures and mortgages are forms of debt because they represent long-term
borrowing that a company must repay, usually with interest. They are not considered assets or equity.
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Question Reference From : Gearing
2. Which of the following is a method to reduce gearing?
Your Answer : All of the Above
Description : Selling shares increases equity, converting loans reduces debt by turning them into equity
and increasing profits can help pay off debt or boost retained earnings, all of which lower the gearing ratio
by improving the balance between debt and equity.
3. A high P/E Ratio typically indicates that ____________.
Your Answer : The company has low earnings growth expectations
Correct Answer : Investors expect higher earnings growth in the future
Description : A high P/E Ratio typically indicates that Investors expect higher earnings growth in the future,
as they are willing to pay more now for anticipated future earnings.
Question Reference From : Price Earning Ratio (PE)
4. What does an Interest Coverage Ratio of less than 1 indicate?
Your Answer : The company cannot pay its interest payments
Description : An Interest Coverage Ratio of less than 1 indicates that a company's earnings before interest
and taxes (EBIT) are insufficient to cover its interest expenses. This suggests that the company might
struggle to meet its interest obligations, potentially leading to financial distress or a risk of default.
Question Reference From : Interest Coverage Ratio
5. A company has a net profit before interest and tax of $50,000 and capital employed of $250,000. What is
the ROCE?
Your Answer : 20%
Description : ROCE is calculated as Net Profit Before Interest and Tax / Capital Employed. So, $50,000 /
$250,000 = 0.20 or 20%.
Question Reference From : Return on Capital Employed (ROCE)
6. Too much debt can put your business at risk, but too little debt may limit your potential.
Your Answer : True
Description : Excessive debt can increase a company's financial risk, leading to potential difficulties in
meeting interest payments and other obligations, which might threaten its stability. Conversely, having too
little debt can restrict a company’s growth potential and limit its ability to invest in new opportunities or
expansion.
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7. A bank typically looks for an Interest Coverage Ratio of at least _________.
Your Answer :2
Correct Answer : 1.5
Description : Banks and financial institutions generally prefer a minimum Interest Coverage Ratio of 1.5 to
ensure that a company can meet its interest obligations comfortably.
Question Reference From : Interest Coverage Ratio
8. Which of the following is used to calculate Capital Employed?
Your Answer : Total of short-term liabilities
Correct Answer : Total of fixed assets plus working capital
Description : Capital employed is calculated as the sum of fixed assets and working capital. This represents
the total investment made in the business to generate returns.
9. What does a low P/E Ratio potentially indicate?
Your Answer : All of the above
Correct Answer : The company is undervalued
Description : A low P/E ratio often suggests that a company's stock may be undervalued relative to its
earnings, indicating that investors might expect lower future growth or have concerns about the
company's performance.
Question Reference From : Price Earning Ratio (PE)
10. Which of the following ratios measures long-term profitability by evaluating the efficient use of long-term
assets and capital invested?
Your Answer : Operating Profit Ratio
Correct Answer : Return on Capital Employed
Description : Return on Capital Employed (ROCE) measures how effectively a company is using its long-
term assets and capital to generate profits. It indicates long-term profitability and capital efficiency.
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Diploma in Business Administration

Ratios and Returns

Quiz Completion Time : 00:10:48

Your Score : 50%

Passing Score : 50%

Your Strong Areas:

Lesson - Return on Capital Employed (ROCE)

Lesson - Price Earning Ratio (PE)

Lesson - Interest Coverage Ratio

1. Long-term debentures and Mortgages are examples of _____________.

Your Answer : Debt

2. Which of the following is a method to reduce gearing?

Your Answer : All of the Above

Question Reference From : Gearing

3. A high P/E Ratio typically indicates that ____________.

Your Answer : The company has low earnings growth expectations

Correct Answer : Investors expect higher earnings growth in the future

Question Reference From : Price Earning Ratio (PE)

4. What does an Interest Coverage Ratio of less than 1 indicate?

Your Answer : The company cannot pay its interest payments

Question Reference From : Interest Coverage Ratio

Your Answer : 20%

Question Reference From : Return on Capital Employed (ROCE)

Your Answer : True

7. A bank typically looks for an Interest Coverage Ratio of at least _________.

Correct Answer : 1.5

Question Reference From : Interest Coverage Ratio

8. Which of the following is used to calculate Capital Employed?

Your Answer : Total of short-term liabilities

Correct Answer : Total of fixed assets plus working capital

Question Reference From : Return on Capital Employed (ROCE)

9. What does a low P/E Ratio potentially indicate?

Your Answer : All of the above

Correct Answer : The company is undervalued

Question Reference From : Price Earning Ratio (PE)

Correct Answer : Return on Capital Employed

Question Reference From : Return on Capital Employed (ROCE)

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