Inter-Firm Comparison (Copy)
Topic 6.3: Inter-Firm Comparison – Quiz
O Level and IGCSE Accounting
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
1. What is meant by inter-firm comparison?
A. Comparing a firm’s sales over two years
B. Comparing results of two or more businesses in the same industry
C. Comparing ratios to industry average
D. Comparing a business’s revenue to its expenses
2. Which of the following is a major use of inter-firm comparison?
A. Checking internal errors
B. Preparing trial balances
C. Benchmarking performance
D. Paying taxes
3. What is a key benefit of inter-firm comparison?
A. It increases profit directly
B. It allows businesses to evaluate relative performance
C. It removes accounting errors
D. It ensures accurate financial statements
4. Which tool is most commonly used in inter-firm comparison?
A. Bank reconciliation
B. Ratio analysis
C. Control accounts
D. Depreciation schedules
5. Two firms have the same gross profit margin, but one has a much lower net profit margin. This suggests:
A. They are equally profitable
B. One firm has higher operating expenses
C. One firm has better revenue
D. Both firms are inefficient
6. If a business wants to assess whether its inventory management is efficient compared to others, it should use:
A. Trade receivables turnover
B. Gross profit ratio
C. Inventory turnover ratio
D. ROCE
7. Which of the following would limit the usefulness of inter-firm comparison?
A. Using audited accounts
B. Similar industry type
C. Different accounting policies
D. Using ratios
8. A business has a current ratio of 2:1, while its competitor has 1.5:1. What does this imply?
A. The competitor is more profitable
B. The business is less liquid
C. The business has a stronger liquidity position
D. The competitor is insolvent
9. Why is it important to ensure both firms use the same accounting period in comparison?
A. To avoid differences in cost of goods
B. To ensure ratios are accurate and comparable
C. To reduce tax liabilities
D. To improve gross profit
10. A firm has a higher trade payables turnover (days) than the industry average. What could this indicate?
A. It is paying suppliers more slowly
B. It has high revenue
C. It is more profitable
D. It is more efficient in collections
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
11. Which of the following would make inter-firm comparison misleading?
A. Similar capital employed
B. Different depreciation policies
C. Equal inventory turnover
D. Similar net profit margins
12. A business has a gross margin of 40% and its competitor has 35%. What does this suggest?
A. The competitor has lower operating expenses
B. The business controls cost of sales better
C. The business pays more tax
D. The competitor has higher liquidity
13. Which of the following ratios is most useful when comparing profitability?
A. Trade receivables turnover
B. Profit margin
C. Current ratio
D. Quick ratio
14. Inter-firm comparison is most useful when:
A. Comparing unrelated industries
B. Firms use cash basis
C. Accounting policies are consistent
D. Firms use different fiscal years
15. A business with a lower inventory turnover than a competitor likely has:
A. Higher inventory levels or lower sales
B. More profit
C. Better cost control
D. High liquidity
16. Two businesses have the same revenue, but one has higher ROCE. This suggests:
A. Both are equally efficient
B. The one with higher ROCE is generating more profit from its capital
C. One has higher cost of sales
D. One has higher inventory
17. Which of the following is not a limitation of inter-firm comparison?
A. Inflation effects
B. Different year-ends
C. Ratio analysis
D. Different depreciation methods
18. Why might using financial statements for inter-firm comparison be misleading?
A. All financial statements are the same
B. They may follow different accounting conventions
C. They are audited
D. They include cash flows
19. A business has a better current ratio than its rival, but a worse liquid ratio. What could this suggest?
A. The business holds more liquid assets
B. The business holds more inventory
C. The rival is insolvent
D. The business has less working capital
20. A company with a lower gross margin than its competitor may be:
A. Selling at higher prices
B. Buying at lower cost
C. Facing higher cost of sales
D. More profitable
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
Answer key and explanations
Topic 6.3 – Inter-Firm Comparison
O Level and IGCSE Accounting
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
1. Correct Answer: B
Explanation: Inter-firm comparison involves comparing performance between firms in the same industry.
2. Correct Answer: C
Explanation: Benchmarking helps businesses compare themselves to competitors and improve.
3. Correct Answer: B
Explanation: Inter-firm comparison helps assess relative strengths and weaknesses.
4. Correct Answer: B
Explanation: Ratio analysis is the key tool used for comparing business performance.
5. Correct Answer: B
Explanation: The firm with lower net margin likely has higher operating expenses despite similar gross margin.
6. Correct Answer: C
Explanation: Inventory turnover ratio reveals how well inventory is managed compared to competitors.
7. Correct Answer: C
Explanation: Different accounting policies (e.g. depreciation or inventory valuation) distort comparisons.
8. Correct Answer: C
Explanation: A current ratio of 2:1 indicates better liquidity than 1.5:1.
9. Correct Answer: B
Explanation: Different accounting periods may reflect seasonal or one-off events, reducing comparability.
10. Correct Answer: A
Explanation: Higher payables turnover (days) means the firm takes longer to pay suppliers.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
11. Correct Answer: B
Explanation: Different depreciation policies affect profit, asset values, and ROCE.
12. Correct Answer: B
Explanation: Higher gross margin indicates better control over cost of sales.
13. Correct Answer: B
Explanation: Profit margin measures profitability directly by comparing net profit to revenue.
14. Correct Answer: C
Explanation: Comparability requires consistent accounting methods across firms.
15. Correct Answer: A
Explanation: A lower turnover rate usually means inventory is not selling quickly or is held in excess.
16. Correct Answer: B
Explanation: ROCE measures how efficiently capital is used to generate profit.
17. Correct Answer: C
Explanation: Ratio analysis is the method used; it is not a limitation.
18. Correct Answer: B
Explanation: Different accounting conventions (e.g. FIFO vs. AVCO) affect comparability.
19. Correct Answer: B
Explanation: A firm can have a higher current ratio due to high inventory, but a lower liquid ratio.
20. Correct Answer: C
Explanation: A lower gross margin indicates higher cost of sales or lower selling price.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course