This set has ten original questions on ratios and interpretation. They run from easy to harder: margin and markup, liquidity, profit changes, comparisons and written conclusions.
Write your own working on paper first. Then open the answer, compare line by line and tick off each step.
All businesses and figures are fictional, and amounts are in RM. Give percentages to one decimal place and ratios to two decimal places unless told otherwise.
Questions
Question 1 (easy). Kedai Runcit Maju had revenue of RM60,000 and cost of sales of RM45,000. Find the gross margin and the markup.
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Gross profit = 60,000 − 45,000 = RM15,000. Margin = 15,000 ÷ 60,000 × 100 = 25.0%. Markup = 15,000 ÷ 45,000 × 100 = 33.3%.
Check: 45,000 × 1.3333 = 60,000.
Question 2 (easy). A bag costs RM120. The shop adds a markup of 40%. Find the selling price and the gross margin.
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Selling price = 120 × 1.4 = RM168. Gross profit = 168 − 120 = RM48. Margin = 48 ÷ 168 × 100 = 28.6%.
Check: 28.6% of 168 is about 48.
Question 3 (easy). A trader earns a gross margin of 30% on a sale of RM500. Find the cost of sales and the markup.
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Gross profit = 30% of 500 = RM150. Cost of sales = 500 − 150 = RM350. Markup = 150 ÷ 350 × 100 = 42.9%.
Check: 350 × 1.4286 is about 500.
Question 4 (easy). Kedai Dobi Bersih has inventory RM24,000, trade receivables RM9,000 and bank RM3,000. Trade payables are RM16,000 and accrued expenses RM2,000. It also has a loan of RM15,000 repayable in three years. Find the current ratio and the liquid ratio.
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Current assets = 24,000 + 9,000 + 3,000 = 36,000. Current liabilities = 16,000 + 2,000 = 18,000. The loan is non-current, so it is left out.
Current ratio = 36,000 ÷ 18,000 = 2.00 : 1. Liquid ratio = (36,000 − 24,000) ÷ 18,000 = 12,000 ÷ 18,000 = 0.67 : 1.
Question 5 (medium). In Year 2, Seri Mawar Trading had revenue RM150,000, gross profit RM54,000 and expenses RM36,000. Find the profit for the year, the gross margin, the profit margin and expenses as a percentage of revenue.
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Profit = 54,000 − 36,000 = RM18,000. Gross margin = 54,000 ÷ 150,000 = 36.0%. Profit margin = 18,000 ÷ 150,000 = 12.0%. Expenses = 36,000 ÷ 150,000 = 24.0%.
Check: 36% − 24% = 12%.
Question 6 (medium). In Year 1, Seri Mawar Trading had revenue RM120,000, cost of sales RM72,000 and expenses RM33,600. Compare Year 1 with Year 2 from question 5. What do the profit amount and the profit margin show, and which line changed most?
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Year 1: gross profit = 120,000 − 72,000 = 48,000, a margin of 40.0%. Profit = 48,000 − 33,600 = 14,400, a margin of 14,400 ÷ 120,000 = 12.0%. Expenses = 33,600 ÷ 120,000 = 28.0%.
Profit rose from RM14,400 to RM18,000, an increase of 25% (18,000 ÷ 14,400 = 1.25). Revenue also rose 25% (150,000 ÷ 120,000 = 1.25), so the profit margin stayed at 12.0%.
Underneath, the gross margin fell from 40.0% to 36.0%, while expenses fell from 28.0% of revenue to 24.0%. The two movements of 4 points cancelled out. The gross margin fall is the weaker point, and the evidence to check would be supplier prices and discounts.
Question 7 (medium). Firm P (a bakery) has a profit margin of 10%. Firm Q (a furniture shop) has a profit margin of 15%. A student writes: “Firm Q is better managed.” Give three pieces of context you would ask for before agreeing.
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Any three of: the size of each firm (revenue and capital), the year end and whether either year had unusual events, depreciation and inventory policies, how each is financed, whether the ratios use identical formulas, and the trend over more than one year.
A bakery and a furniture shop have different cost structures, so a margin gap alone does not show management quality.
Question 8 (medium). A student writes: “The liquid ratio is 0.67 : 1, so the business will fail.” Rewrite the sentence as a balanced conclusion.
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Example: “A liquid ratio of 0.67 : 1 suggests the business could not pay all its current liabilities from cash and receivables alone, so it relies on selling inventory. This is a single-date figure, so the cash forecast, inventory turnover and the date payables fall due are needed before judging whether there is a real problem.”
The answer states what the ratio suggests, gives a limit, and names extra evidence. It does not predict failure.
Question 9 (harder). A student calculates the current ratio for a firm with current assets of RM30,000, current liabilities of RM12,000 and a non-current loan of RM18,000 as 30,000 ÷ 30,000 = 1.0 : 1. Find the error and give the correct ratio.
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The student added the non-current loan to current liabilities. The loan is not due within the year.
Correct current ratio = 30,000 ÷ 12,000 = 2.50 : 1. The loan may still matter for a wider discussion of the firm’s finances, but not in this ratio.
Question 10 (harder). Revenue was RM90,000 and the business adds a markup of 25% on cost. Find the cost of sales, the gross profit and the gross margin.
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Revenue is cost plus 25% of cost, so revenue = 1.25 × cost of sales. Cost of sales = 90,000 ÷ 1.25 = RM72,000. Gross profit = 90,000 − 72,000 = RM18,000. Gross margin = 18,000 ÷ 90,000 = 20.0%.
Check: 25% of 72,000 = 18,000.
If you got these wrong
| What went wrong | Revisit |
|---|---|
| Margin and markup swapped, or the wrong base was used (questions 1, 2, 3, 10) | Distinguish margin from markup |
| Items in the wrong group, or non-current loan included (questions 4, 9) | Calculate liquidity using compatible definitions |
| Compared amounts only, or missed which line moved (questions 5, 6) | Interpret a profitability change with supporting evidence |
| Declared a winner without context (question 7) | Compare firms only with relevant context |
| Wrote a verdict instead of a balanced conclusion (question 8) | Explain a ratio’s limitation |
Use the ratios with interpretation limits tool and the percentage-base explorer to rework figures, and record repeat errors in the mistake log and retest queue. The Accounting learning guide shows the other modules.
A teacher in online one-to-one Accounting tuition can go through a pattern of errors with you.