State True or False with reason

1) Financial Statement includes only Balance Sheets.
ans:-False.
Reason: 
Financial statements include Balance Sheet and Profit and Loss A/c. This is because financial statements are prepared by business organisations to find out efficiency, solvency, profitability, growth, strength and status of the business. For this they need information from the balance sheet as well as from Profit and Loss A/c.

2) Analysis of financial statements is a tool but not a remedy.
Ans:- True.
Reason: 
Based on analysis of financial statement one can get idea of financial strength and weakness of the business. However, based on this one cannot take decision about the business on various issues. Hence analysis of financial statement is a tool but not a remedy.

3) Purchase of Fixed Assets is operating cash flow.
Ans:- False.
Reason:
 Purchase of fixed assets is cash flow from investing activities. It is not a day to day operations activities like office/selling/distribution finance expenses/activities.

4) Dividend paid is not a source of fund
Ans:- True.
Reason:
 Dividend is always paid on shares issued by a company is an expense. Shares itself is a source of fund. In payment of dividend cash goes out from the company. It is an out flow of cash and not a source of fund.

5) Gross Profit depends upon Net Sales.
Ans:- True.
Reason: Gross profit ratio discloses the relation between gross profit and total net sales. Gross profit ratio is an income-based ratio, where gross profit is an income. There is direct relation between net sales and gross profit. Higher the net sales higher the gross profit.

6) Payment of cash against purchase of stock is use of fund.
Ans:- True.
Reason:
 Cash payment for purchase of stock is made from cash balance or/and from bank balance which is a part of business fund. When stock or materials we purchase we use cash for payment.

7) Ratio Analysis is useful for inter-firm comparison
Ans:- True.
Reason: 
The comparision of the operating performance of a business entity with the other business entities is known as inter-firm comparision. This ratio analysis assist to know how and to what extent a business entity is strong or weak as compared to other business entity

8) The short term deposits are considered as cash equivalent.
Ans:- True.
Reason:
 The short-term deposits are liquid assets. It means deposits kept for some period (usually less than one year) and they are kept with an intention to get money quickly as and when required. They are as good as cash and considered as cash equivalent

9) Activity Ratios Turnover Ratios are the same.
Ans:- True.
Reason: 
Turnover ratio is an efficiency ratio to check how efficiently company is using different assets to extract earnings from them. Activity ratio are financial analysis tools used to measure a business ability to convert its assets into cash. From both these definitions we can say that Activity ratios and Turnover ratios are same.

10) Current Ratio measures the liquidity of the business.
ans:- True.
Reason: 
Current ratio shows relation between current assets and current liabilities. If the proportion of current assets is higher than current liabilities, liquidity position of business entity is considered good. More liquidity means more short-term solvency. From the above it is proved that current ratio measures the liquidity of the business.

11)Ratio analysis measures profitability efficiency and financial soundness of the business.
Ans:- True.
Reason:
With the help of profitability ratios (Gross profit, Net profit and Operating profit) one can get the idea of profitability efficiency of the firm and with the help of liquidity ratios (Current ratio and liquid ratio) one can get the idea of solvency or financial soundness of the business.

12) Usually the current ratio should be 3:1.
Ans:- False.
Reason:
Usually the current ratio should be 2:1. It means current assets are double of current liabilities. It shows the short-term solvency of business enterprises.