Sample Quizzes For Preparation: Finance And Accounting Strategy

A2 Level Business – Chapter 10.4 Finance and Accounting Strategy Quiz

Question 1: What is the main purpose of financial statements in strategic decision-making?

A. To estimate employee productivity
B. To evaluate social responsibility
C. To assess business performance and guide future actions
D. To determine staff bonuses

Question 2: What does the income statement primarily show?

A. The value of assets
B. Profit or loss over a period
C. The amount of debt owed
D. The market share

Question 3: Which section of an annual report provides insight into the company’s long-term vision?

A. Auditor’s Report
B. Chairman’s Statement
C. Notes to Accounts
D. Cash Flow Statement

Question 4: Which stakeholder is most interested in dividend yield and EPS figures?

A. Employees
B. Suppliers
C. Government
D. Investors

Question 5: Why is the Statement of Financial Position important for strategic decisions?

A. It tracks consumer trends
B. It reveals short-term profitability
C. It outlines assets, liabilities, and equity
D. It shows employee satisfaction

Question 6: What is the purpose of ratio analysis?

A. To determine board member salaries
B. To analyse public opinion
C. To evaluate financial health and guide decision-making
D. To measure environmental impact

Question 7: A low current ratio may indicate:

A. High profitability
B. Good debt management
C. Poor liquidity
D. Efficient marketing

Question 8: What would a high gearing ratio suggest?

A. Strong reliance on equity
B. High product demand
C. Heavy dependence on debt finance
D. Stable dividend payments

Question 9: A decline in gross profit margin over time might suggest:

A. Reduced marketing activity
B. Better employee retention
C. Rising cost of goods sold
D. Improved asset efficiency

Question 10: Why might a business reduce its dividend payments?

A. To increase immediate share price
B. To conserve cash for reinvestment
C. To discourage investors
D. To comply with tax regulations

Question 11: Which statement is true about equity financing?

A. It increases interest expenses
B. It decreases control of original owners
C. It increases gearing
D. It has to be repaid within a fixed time

Question 12: Why is cash flow data critical for strategy?

A. It tracks historical profits
B. It forecasts stock prices
C. It ensures the business can meet its obligations
D. It calculates employee bonuses

Question 13: Which ratio would best measure return to shareholders?

A. Current ratio
B. Earnings per share (EPS)
C. Gearing ratio
D. Inventory turnover

Question 14: What effect does issuing more equity have on EPS?

A. No effect
B. Increases it
C. Reduces it due to dilution
D. Reduces gearing ratio and increases EPS

Question 15: What type of strategy would likely improve asset turnover ratio?

A. Selling off underutilized assets
B. Increasing dividend payout
C. Hiring more workers
D. Increasing interest expense

Question 16: A limitation of using published accounts is that they:

A. Always reflect future market conditions
B. Can be easily manipulated for window dressing
C. Are tailored for customer loyalty measurement
D. Reflect real-time company value

Question 17: Which part of an annual report details risks and assumptions?

A. Statement of financial position
B. Notes to the accounts
C. Director’s remuneration report
D. CSR section

Question 18: What does a low interest cover ratio imply?

A. Low liquidity
B. High dividend cover
C. Poor ability to meet interest payments
D. Strong growth

Question 19: A business chooses to reinvest rather than pay dividends. What will likely increase?

A. Gearing ratio
B. Shareholder dissatisfaction
C. Retained earnings
D. Short-term liabilities

Question 20: Which strategy would most likely improve quick ratio?

A. Increasing long-term loans
B. Paying suppliers faster
C. Reducing inventory levels
D. Delaying receivables

Question 21: What is the main drawback of ratio comparison between companies?

A. Not enough ratios exist
B. Ratios use non-numeric data
C. Firms may use different accounting policies
D. Ratios cannot be calculated for private firms

Question 22: When assessing performance over time, which method is used?

A. Direct cost benchmarking
B. Horizontal trend analysis
C. Vertical integration
D. Dividend smoothing

Question 23: What does a high dividend yield indicate?

A. Company has high liabilities
B. Share price is falling
C. Investors receive high return relative to share price
D. Gearing is increasing

Question 24: What happens to gearing if more debt is taken on?

A. Gearing falls
B. Gearing rises
C. EPS increases
D. Dividend yield increases

Question 25: Which ratio would be most affected by a change in dividend strategy?

A. Gross margin
B. Current ratio
C. Dividend yield
D. Asset turnover

Question 26: Why might a business choose to accept lower profit margins?

A. To increase gearing
B. To reduce liquidity
C. To gain market share through price competition
D. To delay dividend payments

Question 27: What strategic impact might poor liquidity have?

A. Encourages dividend increases
B. Supports expansion
C. Forces cash flow control or asset sales
D. Promotes debt funding

Question 28: What is one limitation of ratio analysis?

A. It captures non-financial performance
B. It provides perfect industry comparisons
C. It ignores market conditions and qualitative factors
D. It includes CSR measurements

Question 29: Which stakeholders rely most on social and CSR reports in the annual report?

A. Government tax authorities
B. Short-term investors
C. Communities and NGOs
D. Internal auditors

Question 30: What is likely to happen to EPS if a firm issues new shares but profits remain the same?

A. EPS increases
B. EPS stays the same
C. EPS decreases due to dilution
D. EPS doubles

Answer Key and Detailed Explanations – Chapter 10.4 Finance and Accounting Strategy Quiz

1. C. To assess business performance and guide future actions
→ Financial statements help businesses understand their financial status and make informed strategic choices.

2. B. Profit or loss over a period
→ The income statement shows revenues, costs, and profit/loss for a given accounting period.

3. B. Chairman’s Statement
→ This section outlines strategic direction, goals, and high-level review.

4. D. Investors
→ Investors use ratios like EPS and dividend yield to assess return on investment and share value.

5. C. It outlines assets, liabilities, and equity
→ The statement of financial position shows what the business owns and owes, which is essential for strategic planning.

6. C. To evaluate financial health and guide decision-making
→ Ratio analysis provides performance metrics for profitability, liquidity, efficiency, and solvency.

7. C. Poor liquidity
→ A low current ratio indicates insufficient short-term assets to meet liabilities.

8. C. Heavy dependence on debt finance
→ High gearing shows a large proportion of debt in capital structure.

9. C. Rising cost of goods sold
→ A falling gross profit margin often reflects increasing direct costs like raw materials.

10. B. To conserve cash for reinvestment
→ Lower dividends allow more funds to be retained and used internally.

11. B. It decreases control of original owners
→ Issuing more equity means existing shareholders own a smaller percentage (dilution of control).

12. C. It ensures the business can meet its obligations
→ Cash flow ensures liquidity and operational continuity.

13. B. Earnings per share (EPS)
→ EPS shows the portion of net profit attributed to each share.

14. C. Reduces it due to dilution
→ More shares without increased profit means lower earnings per share.

15. A. Selling off underutilized assets
→ Fewer assets producing the same output increases the asset turnover ratio.

16. B. Can be easily manipulated for window dressing
→ Financial figures may be presented in a way to look better than reality.

17. B. Notes to the accounts
→ Notes explain assumptions, risks, and hidden details behind the numbers.

18. C. Poor ability to meet interest payments
→ A low interest cover ratio means lower earnings available to cover interest obligations.

19. C. Retained earnings
→ Choosing to reinvest profits increases retained earnings on the balance sheet.

20. C. Reducing inventory levels
→ This improves the quick ratio since inventory is excluded from quick assets.

21. C. Firms may use different accounting policies
→ Makes comparison across businesses less reliable.

22. B. Horizontal trend analysis
→ This compares financial results across multiple periods.

23. C. Investors receive high return relative to share price
→ High dividend yield suggests generous dividends or a low share price.

24. B. Gearing rises
→ Borrowing increases the proportion of debt in the capital structure.

25. C. Dividend yield
→ Changes in dividends directly affect this ratio.

26. C. To gain market share through price competition
→ Lower margins can be part of a penetration pricing strategy.

27. C. Forces cash flow control or asset sales
→ Poor liquidity may trigger emergency measures to raise cash.

28. C. It ignores market conditions and qualitative factors
→ Ratios are financial metrics and don’t account for non-numeric realities.

29. C. Communities and NGOs
→ These groups use CSR reports to evaluate ethical and social responsibility.

30. C. EPS decreases due to dilution
→ Issuing more shares reduces EPS if net profit remains constant.