TCE Business Studies — Level 3
Financial Ratios — Flashcards & Quiz
Financial ratios turn raw accounting numbers into comparable measures of performance. For TCE Business Studies Level 3 you should calculate and interpret ratios across four groups — liquidity, profitability, efficiency and gearing — and use them to judge a business's financial health. Strong answers move beyond the number to the story: why the ratio changed, whether it matters for stakeholders, and what management should do about it.
Sample Flashcards
Q1: What is the current ratio and what does it measure?
Current Assets ÷ Current Liabilities. Measures short-term liquidity — the ability to pay debts due within 12 months. Ideal: 1.5–2.0.
Q2: What is the gross profit margin?
Gross Profit ÷ Revenue × 100. Shows the percentage of revenue remaining after cost of goods sold (COGS).
Q3: What is the net profit margin?
Net Profit ÷ Revenue × 100. Shows the percentage of revenue that becomes actual profit after ALL expenses.
Q4: What is the debt-to-equity ratio?
Total Liabilities ÷ Total Equity. Measures financial leverage — how much of the business is funded by debt vs owners' funds.
Q5: What is return on equity (ROE)?
Net Profit ÷ Total Equity × 100. Measures how effectively a business uses owner's investment to generate profit.
Sample Quiz Questions
Q1: A current ratio below 1.0 indicates potential liquidity problems.
Answer: TRUE
Below 1.0 means current liabilities exceed current assets — the business may struggle to pay short-term debts.
Q2: A higher net profit margin is always better than a higher gross profit margin.
Answer: FALSE
They measure different things. Net margin accounts for all expenses; gross margin only accounts for COGS.
Q3: A high debt-to-equity ratio means the business is heavily leveraged.
Answer: TRUE
High D/E indicates greater reliance on debt financing relative to equity.
Last updated: March 2026 · 5 flashcards · 4 quiz questions