Lesson 6.2.4

6.2.4 Ratio Analysis Quiz: NCFE Business & Enterprise, Unit 6

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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Ratio analysis turns raw accounts into comparable measures of profitability and liquidity. This lesson covers net profit margin, return on capital employed, the current ratio and the acid-test ratio, with their formulas, what a high or low result means and how to read a changing figure.

Key points

  • Net profit margin is net profit divided by revenue, multiplied by 100, and shows how much of each pound of sales the business keeps.
  • A margin rising from 8% to 12% means more profit per pound of sales, usually from controlled costs or higher prices.
  • ROCE divides operating profit, before interest and tax, by capital employed and multiplies by 100 to show the return on money invested.
  • Liquidity ratios test whether a firm can pay bills falling due in the near future, which a profitable firm may still fail.
  • The current ratio is current assets divided by current liabilities, and roughly 1.5:1 to 2:1 is usually seen as healthy.
  • The acid-test ratio removes inventory first, because stock can be slow to sell or may have to be sold at a discount.
  • An acid-test result well below 1:1, or one that is falling, warns that quick assets do not cover short-term debts.

Key terms

Net profit margin
Net profit as a percentage of revenue, showing the profit kept from each pound of sales.
ROCE
Operating profit divided by capital employed, times 100, measuring the return on money invested.
Liquidity
How easily a business can turn assets into cash to pay its short-term debts.
Current ratio
Current assets divided by current liabilities, testing short-term solvency.
Acid-test ratio
Current assets minus inventory, divided by current liabilities; a stricter liquidity test.
Inventory
Stock held for sale, the least liquid current asset.
Operating profit
Profit before interest and tax have been deducted, used in the ROCE formula.

Host it live on the board and students join with a game code on their own devices, or revise alone with Free Play. The answers are revealed in the game.

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The 20 questions

  1. Which formula correctly calculates the acid-test ratio?

    • (CA - Inventory) / CL
    • CA / CL
    • CA / (CL - Inventory)
    • (CA + Inventory) / CL

  2. What is the correct formula for calculating the net profit margin?

    • (Gross profit / Revenue) x 100
    • (Revenue / Net profit) x 100
    • (Net profit / Revenue) x 100
    • (Net profit / Capital) x 100

  3. What does return on capital employed measure?

    • Cash against debts
    • Profitability against investment
    • Sales against costs
    • Assets against liabilities

  4. Which group of ratios shows whether a business can meet the bills that fall due in the next few months?

    • Liquidity ratios
    • Profitability ratios
    • Capital gearing ratios
    • Efficiency ratios

  5. A shop has current assets of £60,000 (including £20,000 of inventory) and current liabilities of £30,000. What is its current ratio?

    • 2:1
    • 1.33:1
    • 0.5:1
    • 3:1

  6. Why is inventory excluded from the acid-test ratio?

    • Slow to sell
    • Exempt from tax
    • Too high value
    • Already sold out

  7. What does a rising net profit margin indicate for a business?

    • Reduced sales volume
    • Lower operating costs
    • Increased borrowing
    • Higher profit per sale

  8. Which formula is used to calculate return on capital employed (ROCE)?

    • Gross profit / Capital x 100
    • Net profit / Revenue x 100
    • Operating profit / Capital employed x 100
    • Operating profit / Revenue x 100

  9. How is the current ratio calculated to assess short-term liquidity?

    • Liquid assets / Total debt
    • Current assets / Current liabilities
    • Current liabilities / Current assets
    • Current assets minus inventory

  10. What does an acid-test ratio of 0.4:1 suggest?

    • High fixed assets
    • Strong liquidity
    • Excessive profit
    • Cash flow risk

  11. What financial metric does the net profit margin primarily show?

    • Asset turnover
    • Profit per pound
    • Return on investment
    • Gearing ratio

  12. What is the formula for calculating net profit margin percentage?

    • (Operating profit / Capital) * 100
    • (Total sales / Net profit) * 100
    • (Net profit / Total sales) * 100
    • (Gross profit / Total sales) * 100

  13. What does the acronym ROCE stand for in business finance?

    • Return on capital employed
    • Rate of current earnings
    • Return on company equity
    • Ratio of cash expenditure

  14. What is the standard formula for calculating ROCE?

    • (Operating profit / Capital employed) * 100
    • (Gross profit / Revenue) * 100
    • (Net profit / Total assets) * 100
    • (Operating profit / Equity) * 100

  15. What does the current ratio measure?

    • Production efficiency
    • Short-term liquidity
    • Long-term solvency
    • Gross profit margin

  16. What is the standard formula for the current ratio?

    • Total assets / Total liabilities
    • Liquid assets / Current liabilities
    • Current assets / Current liabilities
    • Current liabilities / Current assets

  17. What does the acid-test ratio measure?

    • Inventory turnover speed
    • Liquidity without stock
    • Total annual profit
    • Long-term borrowing

  18. What is the numerator in the acid-test ratio calculation?

    • Current assets minus receivables
    • Current assets minus inventory
    • Total assets minus inventory
    • Current assets plus inventory

  19. A café has sales revenue of £250,000, gross profit of £100,000 and net profit of £20,000. What is its net profit margin?

    • 40.0%
    • 8.0%
    • 12.5%
    • 20.0%

  20. An acid-test ratio falling from 1.1 to 0.6 indicates what financial risk?

    • Liquidity crisis
    • Higher profit margins
    • Lower fixed costs
    • Increased share value

All NCFE Business & Enterprise quizzes