Chapter 15 financial performance measurement

F5 Performance management practice questions ACCA F5 Performance management practice questions ACCA F5 Performance management practice questions ACCA

Financial Performance Measurement

Prepared for Educational Purposes

August 18, 2025

Contents

1

1 Part 1: List of Questions

This section contains 50 multiple-choice questions based on Financial Performance Mea-surement, focusing on profitability, liquidity, efficiency, and gearing ratios Numbers are left-aligned from 1 to 50 For questions with drop-down lists, select the appropriate option

1 Which of the following ratios is a measure of profitability?

a Trade receivables / revenue × 365

b Revenue / total long-term capital

c Long-term liabilities / shareholders’ funds

d Inventory / cost of sales × 365

2 Identify whether each of the following ratios can be calculated using only figures available in the statement of financial position

• Return on capital employed [No / Yes]

• Current ratio [No / Yes]

• Inventory days [No / Yes]

• Gearing [No / Yes]

3 The following ratios have been calculated for a company: Net profit margin: 25%, Gross profit margin: 35%, Asset turnover: 60%, Gearing: 50% What is the com-pany’s return on capital employed?

a 17.5%

b 12.5%

c 21%

d 15%

4 Identify what effect raising a long-term loan to buy a non-current asset would have

on each of the following ratios

• Current ratio [No effect / Increase / Decrease]

• Gearing [No effect / Increase / Decrease]

5 Identify what effect writing off inventory would have on each of the following ratios

• Current ratio [No effect / Increase / Decrease]

• Quick ratio [No effect / Increase / Decrease]

• Inventory days [No effect / Increase / Decrease]

• Gearing [No effect / Increase / Decrease]

6 Which of the following is a liquidity ratio?

a Net profit / revenue

b Current assets / current liabilities

c Revenue / capital employed

d Long-term debt / equity

7 A company has a net profit margin of 20% and an asset turnover of 0.8 What is its return on capital employed?

a 16%

b 20%

c 12%

d 18%

8 Which of the following ratios requires data from both the income statement and the statement of financial position?

a Current ratio

b Quick ratio

c Gearing

d Gross profit margin

9 What effect would increasing trade payables have on the quick ratio?

a Increase

b Decrease

c No effect

d Cannot determine

10 A company has current assets of $100,000, current liabilities of $50,000, and inventory

of $30,000 What is its quick ratio?

a 1.4

b 2.0

c 0.7

d 1.0

11 Which of the following is a measure of efficiency?

a Net profit margin

b Trade payables / cost of sales × 365

c Debt / equity

d Return on equity

12 A company has a gross profit margin of 40% and a net profit margin of 15% If revenue is $500,000, what is the cost of sales?

a $300,000

b $200,000

c $425,000

d $350,000

13 Identify whether the following ratio can be calculated using only figures from the income statement: Net profit margin

a Yes

b No

14 What effect would selling inventory for cash at cost have on the current ratio?

a Increase

b Decrease

c No effect

d Cannot determine

15 A company has total assets of $200,000, current liabilities of $50,000, and net profit

of $30,000 What is its return on capital employed?

a 15%

b 20%

c 12%

d 18%

16 Which of the following ratios measures financial leverage?

a Inventory turnover

b Debt / total assets

c Gross profit margin

d Asset turnover

17 A company has a current ratio of 2.0 and a quick ratio of 1.2 If current liabilities are

$100,000, what is the value of inventory?

a $80,000

b $120,000

c $60,000

d $40,000

18 What effect would issuing new shares for cash have on gearing?

a Increase

b Decrease

c No effect

d Cannot determine

19 A company has revenue of $1,000,000, cost of sales of $600,000, and operating expenses

of $300,000 What is its net profit margin?

a 10%

b 15%

c 20%

d 25%

20 Identify whether the following ratio can be calculated using only figures from the statement of financial position: Debt to equity ratio

a Yes

b No

21 What effect would paying off a long-term loan have on the current ratio?

a Increase

b Decrease

c No effect

d Cannot determine

22 A company has a net profit margin of 10% and revenue of $800,000 What is its net profit?

a $80,000

b $100,000

c $60,000

d $120,000

23 Which of the following ratios is a measure of liquidity?

a Return on assets

b Quick ratio

c Gross profit margin

d Asset turnover

24 A company has total assets of $500,000, shareholders funds of $300,000, and long-term liabilities of $150,000 What is its gearing ratio?

a 33.3%

b 50%

c 25%

d 40%

25 What effect would purchasing inventory on credit have on the quick ratio?

a Increase

b Decrease

c No effect

d Cannot determine

26 A company has a gross profit margin of 30% and revenue of $400,000 What is its gross profit?

a $100,000

b $120,000

c $140,000

d $160,000

27 Identify whether the following ratio requires data from both the income statement and statement of financial position: Return on equity

a Yes

b No

28 What effect would selling a non-current asset for cash have on the current ratio?

a Increase

b Decrease

c No effect

d Cannot determine

29 A company has current assets of $150,000, inventory of $50,000, and current liabilities

of $75,000 What is its current ratio?

a 2.0

b 1.5

c 1.33

d 1.0

30 Which of the following ratios measures efficiency in asset utilization?

a Net profit margin

b Debt to equity

c Asset turnover

d Current ratio

31 A company has a net profit margin of 12% and an asset turnover of 0.5 What is its return on capital employed?

a 6%

b 8%

c 10%

d 12%

32 What effect would writing off trade receivables have on the current ratio?

a Increase

b Decrease

c No effect

d Cannot determine

33 A company has cost of sales of $200,000 and inventory of $40,000 What is its inven-tory days?

a 73 days

b 60 days

c 80 days

d 90 days

34 Identify whether the following ratio can be calculated using only figures from the income statement: Gross profit margin

a Yes

b No

35 What effect would paying off trade payables with cash have on the quick ratio?

a Increase

b Decrease

c No effect

d Cannot determine

36 A company has revenue of $600,000, gross profit of $180,000, and net profit of $60,000 What is its net profit margin?

a 8%

b 10%

c 12%

d 15%

37 Which of the following ratios measures profitability relative to equity?

a Return on capital employed

b Return on equity

c Current ratio

d Quick ratio

38 A company has current assets of $200,000, current liabilities of $80,000, and inventory

of $60,000 What is its quick ratio?

a 1.75

b 2.5

c 1.25

d 1.0

39 What effect would raising a short-term loan have on gearing?

a Increase

b Decrease

c No effect

d Cannot determine

40 A company has total assets of $400,000, revenue of $800,000, and capital employed of

$300,000 What is its asset turnover?

a 2.0

b 2.67

c 1.5

d 1.33

41 Identify whether the following ratio requires data from both the income statement and statement of financial position: Asset turnover

a Yes

b No

42 What effect would purchasing a non-current asset with cash have on the quick ratio?

a Increase

b Decrease

c No effect

d Cannot determine

43 A company has shareholders funds of $250,000 and long-term liabilities of $100,000 What is its gearing ratio?

a 28.6%

b 40%

c 33.3%

d 50%

44 Which of the following ratios measures the speed of collecting receivables?

a Inventory days

b Trade receivables collection period

c Gross profit margin

d Return on assets

45 A company has a gross profit margin of 25% and cost of sales of $300,000 What is its revenue?

a $360,000

b $375,000

c $400,000

d $450,000

46 What effect would increasing revenue without changing assets have on return on capital employed?

a Increase

b Decrease

c No effect

d Cannot determine

47 A company has current assets of $120,000, current liabilities of $60,000, and inventory

of $30,000 What is its current ratio?

a 1.5

b 2.0

c 1.0

d 2.5

48 Which of the following ratios measures efficiency in inventory management?

a Return on equity

b Inventory turnover

c Net profit margin

d Gearing

49 A company has a net profit margin of 8% and an asset turnover of 1.2 What is its return on capital employed?

a 9.6%

b 10.2%

c 8.8%

d 12.0%

50 What effect would writing off a non-current asset have on gearing?

a Increase

b Decrease

c No effect

d Cannot determine

51 A company has trade receivables of $50,000 and revenue of $365,000 What is its trade receivables collection period?

a 50 days

b 60 days

c 45 days

d 55 days

52 Identify whether the following ratio can be calculated using only figures from the statement of financial position: Current ratio

a Yes

b No

2 Part 2: Answers with Detailed Explanations

1 b Revenue / total long-term capital Explanation: This is the asset turnover ratio,

related to profitability via efficiency in using capital Others are liquidity (receivables, inventory) or gearing ratios

2 Return on capital employed: No; Current ratio: Yes; Inventory days: No; Gearing: Yes Explanation: ROCE and inventory days require income statement

data (net profit, cost of sales) Current ratio and gearing use only balance sheet data

3 d 15% Explanation: ROCE = Net profit margin × Asset turnover = 0.25 × 0.6 =

0.15 = 15%.

4 Current ratio: No effect; Gearing: Increase Explanation: A long-term loan

increases cash, then non-current assets, leaving current assets and liabilities unchanged (no effect on current ratio) Gearing increases due to higher long-term liabilities

5 Current ratio: Decrease; Quick ratio: No effect; Inventory days: Decrease; Gearing: Increase Explanation: Writing off inventory reduces current assets

(de-creases current ratio), leaves quick ratio unchanged (inventory excluded), reduces inventory days, and increases gearing by reducing shareholders funds

6 b Current assets / current liabilities Explanation: This is the current ratio, a

liquidity measure Others are profitability or gearing ratios

7 a 16% Explanation: ROCE = 0.20 × 0.8 = 0.16 = 16%.

8 d Gross profit margin Explanation: Gross profit margin requires gross profit and

revenue from the income statement Others use only balance sheet data

9 b Decrease Explanation: Increasing trade payables increases current liabilities,

reducing the quick ratio

10 a 1.4 Explanation: Quick ratio = (100, 000 − 30, 000)/50, 000 = 70, 000/50, 000 =

1.4.

11 b Trade payables / cost of sales × 365 Explanation: This is the trade payables

payment period, an efficiency ratio Others are profitability or gearing

12 a $300,000 Explanation: Gross profit margin = 0.4 = Gross profit/500, 000 = ⇒

Gross profit = 200, 000 Cost of sales = 500, 000 − 200, 000 = 300, 000.

13 a Yes Explanation: Net profit margin = Net profit / Revenue, both from the

income statement

14 c No effect Explanation: Selling inventory for cash at cost converts inventory to

cash, leaving total current assets unchanged

15 c 12% Explanation: Capital employed = 200, 000 − 50, 000 = 150, 000 ROCE =

30, 000/150, 000 = 0.12 = 12%.

16 b Debt / total assets Explanation: This measures financial leverage Others are

efficiency or profitability ratios

17 a $80,000 Explanation: Current ratio = 2.0 = ⇒ Current assets = 2 × 100, 000 =

200, 000 Quick ratio = 1.2 =⇒ (200, 000 − Inventory)/100, 000 = 1.2 =⇒

Inventory = 80, 000.

18 b Decrease Explanation: Issuing shares increases shareholders funds, reducing the

gearing ratio

19 a 10% Explanation: Net profit = 1, 000, 000 − 600, 000 − 300, 000 = 100, 000 Net

profit margin = 100, 000/1, 000, 000 = 10%.

20 a Yes Explanation: Debt to equity = Long-term liabilities / Shareholders funds,

both from the balance sheet

21 c No effect Explanation: Paying off a long-term loan reduces cash (current asset)

but does not affect current liabilities, assuming payment from cash reserves

22 a $80,000 Explanation: Net profit margin = 0.10 = Net profit/800, 000 =⇒

Net profit = 80, 000.

23 b Quick ratio Explanation: Quick ratio measures liquidity Others are profitability

or efficiency ratios

24 a 33.3% Explanation: Gearing = 150, 000/(300, 000+150, 000) = 150, 000/450, 000 =

0.333 = 33.3%.

25 b Decrease Explanation: Purchasing inventory on credit increases inventory and

current liabilities, reducing the quick ratio (inventory excluded from numerator)

26 b $120,000 Explanation: Gross profit margin = 0.3 = Gross profit/400, 000 = ⇒

Gross profit = 120, 000.

27 a Yes Explanation: Return on equity = Net profit / Shareholders funds, requiring

income statement and balance sheet data

28 a Increase Explanation: Selling a non-current asset for cash increases current

assets, increasing the current ratio

29 a 2.0 Explanation: Current ratio = 150, 000/75, 000 = 2.0.

30 c Asset turnover Explanation: Asset turnover measures efficiency in using assets

to generate revenue

31 a 6% Explanation: ROCE = 0.12 × 0.5 = 0.06 = 6%.

32 b Decrease Explanation: Writing off trade receivables reduces current assets,

de-creasing the current ratio

33 a 73 days Explanation: Inventory days = 40, 000/200, 000 × 365 ≈ 73 days.

34 a Yes Explanation: Gross profit margin = Gross profit / Revenue, both from the

income statement

35 a Increase Explanation: Paying off trade payables reduces current liabilities and

current assets (cash), but the reduction in liabilities increases the quick ratio

36 b 10% Explanation: Net profit margin = 60, 000/600, 000 = 0.1 = 10%.

37 b Return on equity Explanation: Return on equity measures profitability relative

to shareholders funds

38 a 1.75 Explanation: Quick ratio = (200, 000 −60, 000)/80, 000 = 140, 000/80, 000 =

39 c No effect Explanation: A short-term loan affects current liabilities, not long-term

liabilities used in gearing

40 b 2.67 Explanation: Asset turnover = 800, 000/300, 000 ≈ 2.67.

41 a Yes Explanation: Asset turnover = Revenue / Capital employed, requiring

in-come statement and balance sheet data

42 b Decrease Explanation: Purchasing a non-current asset with cash reduces current

assets (cash), decreasing the quick ratio

43 a 28.6% Explanation: Gearing = 100, 000/(250, 000+100, 000) = 100, 000/350, 000 ≈

0.286 = 28.6%.

44 b Trade receivables collection period Explanation: This measures the speed of

collecting receivables

45 c $400,000 Explanation: Gross profit margin = 0.25 = Gross profit/Revenue Cost

of sales = 300, 000 = 0.75 × Revenue =⇒ Revenue = 300, 000/0.75 = 400, 000.

46 a Increase Explanation: Increasing revenue increases net profit, increasing ROCE

(net profit / capital employed)

47 b 2.0 Explanation: Current ratio = 120, 000/60, 000 = 2.0.

48 b Inventory turnover Explanation: Inventory turnover measures efficiency in

man-aging inventory

49 a 9.6% Explanation: ROCE = 0.08 × 1.2 = 0.096 = 9.6%.

50 a Increase Explanation: Writing off a non-current asset reduces assets and

share-holders funds, increasing gearing

51 a 50 days Explanation: Trade receivables collection period = 50, 000/365, 000 ×

365 ≈ 50 days.

52 a Yes Explanation: Current ratio = Current assets / Current liabilities, both from

the balance sheet