1. What is the primary purpose of financial statement analysis?
a) Tax calculation
b) Investment decision-making
c) Payroll management
d) Operational efficiency
Answer: b) Investment decision-making
2. Which statement provides information about a company’s liquidity?
a) Balance Sheet
b) Income Statement
c) Cash Flow Statement
d) Statement of Retained Earnings
Answer: a) Balance Sheet
3. Which ratio measures a company’s ability to meet short-term obligations?
a) Debt-Equity Ratio
b) Current Ratio
c) Return on Equity
d) Price-to-Earnings Ratio
Answer: b) Current Ratio
4. Which is a limitation of financial statement analysis?
a) It is time-consuming
b) It does not consider qualitative factors
c) It provides accurate future predictions
d) It focuses only on profitability
Answer: b) It does not consider qualitative factors
5. What type of analysis compares financial data over a series of years?
a) Horizontal Analysis
b) Vertical Analysis
c) Ratio Analysis
d) Common Size Analysis
Answer: a) Horizontal Analysis
6. Which ratio measures profitability relative to sales?
a) Net Profit Margin
b) Current Ratio
c) Debt-to-Asset Ratio
d) Inventory Turnover
Answer: a) Net Profit Margin
7. What is the formula for Return on Equity (ROE)?
a) Net Income / Total Assets
b) Net Income / Shareholders’ Equity
c) Operating Income / Total Liabilities
d) Net Income / Revenue
Answer: b) Net Income / Shareholders’ Equity
8. What does a high Debt-to-Equity ratio indicate?
a) Low financial risk
b) High leverage
c) High profitability
d) High liquidity
Answer: b) High leverage
9. What does the Quick Ratio exclude?
a) Inventory
b) Accounts Receivable
c) Cash and Cash Equivalents
d) Short-term Investments
Answer: a) Inventory
10. What does the Price-to-Earnings (P/E) ratio measure?
a) Market value relative to book value
b) Earnings per share relative to stock price
c) Market value relative to earnings
d) Earnings per share
Answer: c) Market value relative to earnings
11. Which cash flow activity includes dividends paid?
a) Operating Activities
b) Investing Activities
c) Financing Activities
d) Tax Activities
Answer: c) Financing Activities
Accounting and Finance Most Important Formulas
Accounting and Finance Mcqs with Answer
12. Free Cash Flow is calculated as:
a) Net Cash from Operating Activities - Capital Expenditures
b) Net Cash from Operating Activities + Investing Activities
c) Net Cash from Financing Activities - Tax Expenses
d) Net Profit - Depreciation
Answer: a) Net Cash from Operating Activities - Capital Expenditures
13. Which ratio measures how efficiently a company uses its assets to generate sales?
a) Asset Turnover Ratio
b) Net Profit Margin
c) Return on Assets (ROA)
d) Debt-Equity Ratio
Answer: a) Asset Turnover Ratio
14. What is a sign of declining financial health in cash flow analysis?
a) Negative cash flow from investing activities
b) Increasing cash flow from operating activities
c) Consistently negative cash flow from operating activities
d) Stable financing cash flow
Answer: c) Consistently negative cash flow from operating activities
15. What is included in the operating cash flow section?
a) Depreciation
b) Loan repayment
c) Purchase of equipment
d) Dividend income
Answer: a) Depreciation
16. Common-size analysis expresses each financial statement item as a percentage of:
a) Total Revenue
b) Total Assets or Total Sales
c) Net Income
d) Shareholders’ Equity
Answer: b) Total Assets or Total Sales
17. Earnings per Share (EPS) is calculated as:
a) Net Income / Number of Outstanding Shares
b) Total Revenue / Total Liabilities
c) Net Income / Shareholders’ Equity
d) Operating Profit / Total Revenue
Answer: a) Net Income / Number of Outstanding Shares
18. Which financial statement provides the best view of a company's solvency?
a) Balance Sheet
b) Income Statement
c) Cash Flow Statement
d) Statement of Retained Earnings
Answer: a) Balance Sheet
19. Which is not part of the DuPont Analysis?
a) Profit Margin
b) Asset Turnover
c) Financial Leverage
d) Current Ratio
Answer: d) Current Ratio
20. What does a low Inventory Turnover Ratio indicate?
a) Efficient inventory management
b) Slow-moving inventory
c) High liquidity
d) High revenue generation
Answer: b) Slow-moving inventory
21. Which financial statement is analyzed to assess profitability?
a) Income Statement
b) Balance Sheet
c) Cash Flow Statement
d) Statement of Changes in Equity
Answer: a) Income Statement
22. Vertical analysis of the income statement is often based on:
a) Total Sales
b) Net Income
c) Total Assets
d) Shareholder’s Equity
Answer: a) Total Sales
23. Which ratio would you use to assess a company's creditworthiness?
a) Times Interest Earned
b) Inventory Turnover
c) Return on Equity
d) Gross Margin Ratio
Answer: a) Times Interest Earned
24. Which item is part of financing activities?
a) Issuance of shares
b) Purchase of machinery
c) Payment for raw materials
d) Interest received
Answer: a) Issuance of shares
25. What is the primary objective of ratio analysis?
a) Record keeping
b) Financial forecasting
c) Comparative analysis
d) Tax estimation
Answer: c) Comparative analysis
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