What is the primary purpose of financial statement analysis?
a) To prepare tax returns
b) To evaluate a company’s financial health
c) To set employee salaries
d) To conduct market research
Which financial statement shows a company’s financial position at a specific point in time?
a) Income statement
b) Cash flow statement
c) Balance sheet
d) Statement of retained earnings
What does the income statement primarily report?
a) Assets and liabilities
b) Revenue and expenses
c) Cash inflows and outflows
d) Equity changes
Which ratio measures a company’s ability to pay short-term liabilities?
a) Debt-to-equity ratio
b) Current ratio
c) Return on assets
d) Earnings per share
What does a high debt-to-equity ratio indicate?
a) High financial risk
b) Strong profitability
c) Good liquidity position
d) Low financial risk
Which financial statement helps in assessing a company’s liquidity?
a) Balance sheet
b) Income statement
c) Statement of changes in equity
d) Notes to financial statements
The quick ratio excludes which of the following assets?
a) Cash
b) Marketable securities
c) Inventory
d) Accounts receivable
What does the price-to-earnings (P/E) ratio measure?
a) A company’s liquidity
b) The market value relative to earnings
c) Total revenue growth
d) Cash reserves
What does the cash flow statement show?
a) A company’s profitability
b) Changes in cash position over time
c) The net worth of a company
d) The total revenue earned
What does a negative cash flow from operating activities indicate?
a) Strong profitability
b) Inefficient operations
c) High revenue growth
d) Increase in equity capital
Which of the following is an indicator of financial distress?
a) High net profit margin
b) Declining cash flow from operations
c) Low debt levels
d) Increasing retained earnings
Which financial ratio is used to measure profitability?
a) Quick ratio
b) Net profit margin
c) Current ratio
d) Debt ratio
What does a high inventory turnover ratio indicate?
a) Poor sales performance
b) Slow-moving inventory
c) Efficient inventory management
d) High debt levels
Which ratio measures the return earned on shareholders’ equity?
a) Current ratio
b) Return on equity
c) Inventory turnover ratio
d) Debt-to-equity ratio
Which component is NOT part of a company’s working capital?
a) Accounts receivable
b) Cash
c) Long-term debt
d) Inventory
Which financial statement provides details about a company’s revenue and expenses?
a) Balance sheet
b) Income statement
c) Cash flow statement
d) Statement of equity
What does a low current ratio indicate?
a) Strong profitability
b) Poor short-term liquidity
c) High operational efficiency
d) Increased shareholder equity
Which section of the cash flow statement includes dividend payments?
a) Operating activities
b) Investing activities
c) Financing activities
d) Revenue activities
Which financial statement is most useful for understanding a company’s profitability?
a) Balance sheet
b) Income statement
c) Cash flow statement
d) Statement of retained earnings
What does the return on assets (ROA) ratio measure?
a) How efficiently a company uses its assets to generate profits
b) The amount of revenue generated
c) The company’s ability to pay long-term debts
d) The company’s market capitalization
Which of the following does NOT affect the debt-to-equity ratio?
a) Total liabilities
b) Shareholder’s equity
c) Net income
d) Long-term debt
Which financial statement is best for assessing long-term solvency?
a) Income statement
b) Balance sheet
c) Cash flow statement
d) Notes to financial statements
What does a low asset turnover ratio suggest?
a) Strong revenue generation
b) Efficient asset usage
c) Poor utilization of assets
d) High profitability
Which financial ratio is commonly used by investors to assess stock valuation?
a) Quick ratio
b) Price-to-earnings ratio
c) Debt ratio
d) Inventory turnover ratio
What does an increasing accounts payable balance indicate?
a) Faster payments to suppliers
b) Increased short-term borrowing
c) Reduced operational costs
d) Higher asset turnover
Which ratio measures a company’s ability to cover interest expenses?
a) Debt ratio
b) Times interest earned ratio
c) Inventory turnover
d) Profit margin
Which financial metric is used to assess a company’s market value?
a) Return on equity
b) Market capitalization
c) Quick ratio
d) Current ratio
What does a company’s retained earnings represent?
a) Total net income earned
b) Profits reinvested in the business
c) Outstanding liabilities
d) Shareholder dividends
Which financial ratio indicates a company’s ability to cover its operating expenses?
a) Operating profit margin
b) Debt-to-equity ratio
c) Asset turnover ratio
d) Quick ratio
