Financial Reasoning Test

Free Financial Reasoning Test

1. Question 1 of 10

   A product sells for £80 and costs £52 to make. What is its gross profit margin?

   1. 35%
   2. 53.8%
   3. 65%
   4. 28%
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   Answer: A. 35%

   Gross profit is £80 − £52 = £28. Gross profit margin expresses that profit as a percentage of the selling price, so 28 ÷ 80 = 0.35, which is 35%. Dividing the profit by the cost instead, 28 ÷ 52 = 53.8%, gives the mark-up, which uses the wrong base. Dividing the cost by the price, 52 ÷ 80 = 65%, gives the cost as a share of the price, the opposite of the margin. Reading the £28 cash profit itself as a percentage gives 28%, but a sum of money and the margin it represents are different quantities.

2. Question 2 of 10

   Month	Revenue (£)	Costs (£)
   January	120,000	95,000
   February	138,000	102,000
   March	145,000	118,000

   What was the total profit across all three months?

   1. £88,000
   2. £403,000
   3. £315,000
   4. £61,000
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   Answer: A. £88,000

   Profit each month is revenue minus costs. January: 120,000 − 95,000 = £25,000. February: 138,000 − 102,000 = £36,000. March: 145,000 − 118,000 = £27,000. Total profit = 25,000 + 36,000 + 27,000 = £88,000. Adding the revenue column alone gives £403,000, and adding the costs column alone gives £315,000; neither is profit, and in fact 403,000 − 315,000 = 88,000 confirms the answer. Adding only January and February profit gives £61,000 and drops March.

3. Question 3 of 10

   £12,000 is invested at 4% simple interest per year. How much interest is earned after 3 years?

   1. £1,440
   2. £480
   3. £1,498.37
   4. £13,440
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   Answer: A. £1,440

   Simple interest is the same each year: 12,000 × 4% = £480 per year. Over 3 years that is 480 × 3 = £1,440. Answering £480 gives one year only and forgets to multiply by three. Using compound interest, 12,000 × 1.04³ − 12,000 = £1,498.37, adds interest on the interest, but the question specifies simple interest, where the base stays £12,000 every year. Answering £13,440 gives the final balance, principal plus interest, when the question asks only for the interest earned.

4. Question 4 of 10

   A company pays a supplier $18,600. The exchange rate is £1 = $1.24, and the bank adds a 1.5% fee to the converted sterling amount. What is the total cost in pounds?

   1. £15,225
   2. £15,000
   3. £23,410
   4. £14,775
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   Answer: A. £15,225

   Convert dollars to pounds by dividing by the rate: 18,600 ÷ 1.24 = £15,000. Then add the 1.5% fee: 15,000 × 0.015 = £225, so the total is 15,000 + 225 = £15,225. Stopping at £15,000 forgets the fee. Multiplying by 1.24 instead of dividing, then adding the fee, gives 23,064 × 1.015 = £23,410, which runs the conversion the wrong way: a dollar is worth less than a pound, so the sterling figure must be smaller. Deducting the fee rather than adding it gives 15,000 × 0.985 = £14,775, but a bank charge increases what is paid.

5. Question 5 of 10

   Year	Revenue (£)	Operating profit (£)
   Year 1	500,000	60,000
   Year 2	560,000	75,000

   By what percentage did operating profit change from Year 1 to Year 2?

   1. 25% increase
   2. 20% increase
   3. 12% increase
   4. 2.5% increase
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   Answer: A. 25% increase

   Percentage change uses the starting year as the base. Operating profit rose by 75,000 − 60,000 = £15,000, so 15,000 ÷ 60,000 = 0.25, a 25% increase. Dividing by the Year 2 figure, 15,000 ÷ 75,000 = 20%, uses the wrong base. Looking at revenue instead of profit, (560,000 − 500,000) ÷ 500,000 = 12%, answers about the wrong line of the table. Reading 0.25 as 0.025 gives 2.5% and misplaces the decimal point by one place.

6. Question 6 of 10

   A £6,000 invoice offers a 2% discount for payment within ten days. How much is paid if the invoice is settled early?

   1. £5,880
   2. £120
   3. £6,120
   4. £4,800
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   Answer: A. £5,880

   A 2% discount reduces the £6,000 by 6,000 × 0.02 = £120, so the amount paid is 6,000 − 120 = £5,880. Answering £120 gives only the size of the discount, not the amount payable. Adding the discount instead of subtracting it gives 6,000 + 120 = £6,120, but a discount lowers the bill. Taking 20% off rather than 2%, 6,000 × 0.80 = £4,800, misreads the rate by a factor of ten; 2% is 0.02, not 0.20.

7. Question 7 of 10

   Product	Selling price (£)	Unit cost (£)
   Product A	25.00	15.00
   Product B	40.00	22.00
   Product C	80.00	50.00
   Product D	100.00	80.00

   Which product has the highest gross profit margin?

   1. Product A
   2. Product B
   3. Product C
   4. Product D
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   Answer: B. Product B

   Margin is gross profit as a percentage of selling price, so divide each product’s profit by its price. Product A: (25 − 15) ÷ 25 = 40%. Product B: (40 − 22) ÷ 40 = 45%. Product C: (80 − 50) ÷ 80 = 37.5%. Product D: (100 − 80) ÷ 100 = 20%. Product B has the highest margin at 45%. Product C makes the most cash profit per unit at £30, but on an £80 price that is only 37.5%, so cash profit and margin are different measures. Product D has the highest selling price at £100, yet its £20 profit is just 20% of that price, the lowest margin here. Product A is the cheapest to make at £15, but a low cost does not guarantee the best margin: its 40% still trails Product B.

8. Question 8 of 10

   £8,000 is deposited in an account paying 5% interest compounded annually. What is the balance after 2 years?

   1. £8,820
   2. £8,800
   3. £8,400
   4. £820
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   Answer: A. £8,820

   Compound interest applies each year to the growing balance. After year one: 8,000 × 1.05 = £8,400. After year two: 8,400 × 1.05 = £8,820. Using simple interest, two lots of 5% of the original £8,000 gives 8,000 + 400 + 400 = £8,800, which misses the interest earned on the first year’s interest. Answering £8,400 applies only one year of growth and stops early. Answering £820 gives the total interest earned but not the balance the question asks for.

9. Question 9 of 10

   Day	Receipts (£)	Payments (£)
   Monday	1,200	900
   Tuesday	1,500	1,750
   Wednesday	1,100	800

   A market stall began the week with £500 in its cash float. Using the receipts and payments below, what was the closing cash balance at the end of Wednesday?

   1. £850
   2. £350
   3. £4,300
   4. £1,350
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   Answer: A. £850

   Each day’s net change is receipts minus payments: Monday +300, Tuesday −250, Wednesday +300. The net movement is 300 − 250 + 300 = +£350. Add the £500 opening float: 500 + 350 = £850. Answering £350 gives the net movement but forgets the opening float. Answering £4,300 adds the float to total receipts (500 + 3,800) and ignores the payments entirely. Answering £1,350 treats Tuesday’s £250 shortfall as a gain rather than a loss, 500 + 300 + 250 + 300, when payments that week exceeded receipts on that day.

10. Question 10 of 10

    Supplier	Invoice amount	Currency	Exchange rate (units per £1)
    Supplier P	6,900	EUR	1.15
    Supplier Q	9,000	USD	1.25
    Supplier R	4,200	CHF	1.05

    What is the combined value of the three invoices in pounds?

    1. £17,200
    2. £20,100
    3. £17,478
    4. £23,595
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    Answer: A. £17,200

    Each rate is quoted as foreign-currency units per £1, so convert by dividing. Supplier P: 6,900 ÷ 1.15 = £6,000. Supplier Q: 9,000 ÷ 1.25 = £7,200. Supplier R: 4,200 ÷ 1.05 = £4,000. Combined, 6,000 + 7,200 + 4,000 = £17,200. Adding the face values without converting gives 6,900 + 9,000 + 4,200 = £20,100, treating three currencies as interchangeable. Adding those face values and converting the lot at a single rate, 20,100 ÷ 1.15, gives £17,478; each invoice has its own rate. Multiplying by the rate instead of dividing, 7,935 + 11,250 + 4,410, gives £23,595, running every conversion backwards.