This set has eleven original questions, ordered from easier to harder, covering all five lessons in financial statements and ratios. Questions 1 and 2 check profit figures, 3 and 4 the statement of financial position, 5 to 7 ratios, 8 and 9 comparison, and 10 and 11 the limits of statements.
Attempt each question on paper before opening the answer. Show the formula, the substitution and the answer, as you would in an exam.
Mark which ones you got wrong, then use the routing list at the end. The mistake log tool can help you keep track of repeats, and the ratios tool lets you check your trace.
All businesses here are fictional. Check the Cambridge subject page for your exam year, since 0450 and 0264 can list statements and ratios differently.
Questions
1. A florist in Melaka has revenue of RM60,000 and cost of sales of RM36,000. Find gross profit and the gross profit margin.
Show answer
Gross profit = 60,000 − 36,000 = RM24,000. Gross profit margin = 24,000 ÷ 60,000 × 100 = 40%.
2. A garage has revenue of RM120,000, cost of sales of RM78,000 and expenses of RM30,000. Find gross profit, net profit and the profit margin.
Show answer
Gross profit = 120,000 − 78,000 = RM42,000. Net profit = 42,000 − 30,000 = RM12,000. Profit margin = 12,000 ÷ 120,000 × 100 = 10%.
3. Place each in the correct block: delivery van; inventory; trade payables; a five-year bank loan; cash; owner’s capital.
Show answer
Delivery van: non-current asset. Inventory: current asset. Trade payables: current liability. Five-year bank loan: non-current liability. Cash: current asset. Owner’s capital: equity.
4. A small printing business has non-current assets of RM70,000, inventory of RM8,000, trade receivables of RM6,000, cash of RM4,000, trade payables of RM9,000 and a non-current loan of RM30,000. Find working capital, net assets and capital employed.
Show answer
Current assets = 8,000 + 6,000 + 4,000 = RM18,000. Current liabilities = RM9,000. Working capital = 18,000 − 9,000 = RM9,000. Net assets = 70,000 + 18,000 − 9,000 − 30,000 = RM49,000. Capital employed = equity 49,000 + loan 30,000 = RM79,000. Check: total assets 88,000 − current liabilities 9,000 = 79,000.
5. Using the figures in question 4, calculate the current ratio and the acid test ratio.
Show answer
Current ratio = 18,000 ÷ 9,000 = 2:1. Acid test = (18,000 − 8,000) ÷ 9,000 = 10,000 ÷ 9,000 = 1.11, so 1.1:1 to one decimal place.
6. The same business has an operating profit of RM11,850. Using the capital employed from question 4, find ROCE.
Show answer
ROCE = 11,850 ÷ 79,000 × 100 = 15%. Check: 79,000 × 0.15 = 11,850.
7. A bookshop has a gross profit margin of 30% and gross profit of RM36,000. Find its revenue, its cost of sales and its mark-up on cost.
Show answer
Revenue = 36,000 ÷ 0.30 = RM120,000. Cost of sales = 120,000 − 36,000 = RM84,000. Mark-up = 36,000 ÷ 84,000 × 100 = 42.857, so 42.9%. Margin uses revenue as the base, and mark-up uses cost of sales.
8. Seri Wangi Laundry had revenue of RM300,000 and net profit of RM36,000 in Year 1. In Year 2 it had revenue of RM360,000 and net profit of RM39,600. Compare the profit margin and the change in revenue and profit.
Show answer
Year 1 margin = 36,000 ÷ 300,000 × 100 = 12%. Year 2 margin = 39,600 ÷ 360,000 × 100 = 11%. The margin fell by 1 percentage point. Revenue rose by 60,000 ÷ 300,000 = 20%, and net profit rose by 3,600 ÷ 36,000 = 10%. Profit grew, but more slowly than sales.
9. Bengkel Aman’s current liabilities were RM50,000 in both years. Its current ratio fell from 2:1 to 1.2:1. Find current assets in each year and suggest two possible reasons.
Show answer
Year 1: 2 × 50,000 = RM100,000. Year 2: 1.2 × 50,000 = RM60,000. Current assets fell by RM40,000. Possible reasons: it spent cash on a new machine, it repaid a loan, or it paid out more in drawings. A case would supply which. The business can still pay its short-term debts, but with a smaller margin of safety.
10. A shop sells goods for RM8,000 on credit in November and pays RM5,000 in cash for the stock it sold. The customer pays in January. State the profit and the cash movement for November, and explain what it shows.
Show answer
Profit = 8,000 − 5,000 = RM3,000. Cash movement = 0 − 5,000 = −RM5,000. The business made a profit but its cash fell. Profit and cash are different, so a business can be profitable and still struggle to pay bills.
11. A manager says: “Our profit margin rose from 8% to 10%, so the business is clearly doing better.” Evaluate this in three or four sentences.
Show answer
A higher margin is a positive sign. However, it does not show the amount of profit if sales have fallen, and it says nothing about cash. It also does not show the reason, such as lower costs or a one-off gain. I would want revenue, the cash position and a comparison with similar businesses before agreeing.
If you got these wrong
- Questions 1, 2, 7 (profit figures or margin): return to revenue, gross profit and net profit.
- Questions 3, 4 (blocks and totals): return to reading a statement of financial position.
- Questions 5, 6 (formulas or wrong figures): return to calculating a ratio from supplied figures.
- Questions 8, 9 (comparison): return to comparing a ratio across periods.
- Questions 10, 11 (limits and cash): return to what statements cannot reveal, and test it with the cash versus profit bridge.
If you keep losing the same kind of mark, a teacher can look at your written answers directly. Our online one-to-one Business tuition includes that kind of review.