Financial Analysis MCQs
Which financial statement provides a snapshot of a company’s financial position at a specific point in time?
a) Income statement
b) Balance sheet
c) Statement of cash flows
d) Statement of retained earnings
Answer: b) Balance sheet
The ratio that measures a company’s ability to pay its short-term obligations is called:
a) Return on investment (ROI)
b) Debt-to-equity ratio
c) Current ratio
d) Gross margin ratio
Answer: c) Current ratio
Which financial ratio measures a company’s profitability by comparing its net income to its revenue?
a) Return on assets (ROA)
b) Gross margin ratio
c) Return on equity (ROE)
d) Profit margin ratio
Answer: d) Profit margin ratio
The DuPont analysis breaks down a company’s return on equity (ROE) into which three components?
a) Profit margin, asset turnover, and financial leverage
b) Gross profit, operating profit, and net profit
c) Revenue, expenses, and net income
d) Debt, equity, and retained earnings
Answer: a) Profit margin, asset turnover, and financial leverage
The price-to-earnings (P/E) ratio is commonly used to assess:
a) Liquidity of a company
b) Efficiency of a company’s operations
c) Market value of a company’s stock
d) Profitability of a company’s investments
Answer: c) Market value of a company’s stock
The term “EBITDA” stands for:
a) Earnings before interest, taxes, depreciation, and amortization
b) Earnings before income taxes, dividends, and assets
c) Expenses before interest, taxes, dividends, and amortization
d) Expenses before income taxes, depreciation, and assets
Answer: a) Earnings before interest, taxes, depreciation, and amortization
The ratio that measures a company’s ability to generate sales from its assets is called:
a) Return on assets (ROA)
b) Debt ratio
c) Asset turnover ratio
d) Current ratio
Answer: c) Asset turnover ratio
The formula for calculating the current ratio is:
a) Current assets / Current liabilities
b) Total assets / Total liabilities
c) Net income / Total equity
d) Gross profit / Total revenue
Answer: a) Current assets / Current liabilities
The cash flow statement categorizes cash flows into which three main categories?
a) Operating, investing, and financing activities
b) Revenue, expenses, and net income
c) Current assets, fixed assets, and intangible assets
d) Debt, equity, and retained earnings
Answer: a) Operating, investing, and financing activities
Which financial ratio measures a company’s ability to meet its long-term debt obligations?
a) Debt ratio
b) Return on investment (ROI)
c) Debt-to-equity ratio
d) Interest coverage ratio
Answer: d) Interest coverage ratio
Financial Analysis MCQs
Which financial ratio measures the efficiency of a company’s utilization of its assets to generate revenue?
a) Debt ratio
b) Return on investment (ROI)
c) Quick ratio
d) Asset turnover ratio
Answer: d) Asset turnover ratio
The ratio that measures a company’s ability to cover its interest expenses with its earnings is called:
a) Debt-to-equity ratio
b) Gross margin ratio
c) Interest coverage ratio
d) Return on equity (ROE)
Answer: c) Interest coverage ratio
The formula for calculating return on investment (ROI) is:
a) Net income / Total assets
b) Net income / Shareholders’ equity
c) Net income / Total revenue
d) Net income / Total liabilities
Answer: a) Net income / Total assets
Which financial statement provides a summary of a company’s revenues, expenses, and net income over a specific period?
a) Income statement
b) Balance sheet
c) Statement of cash flows
d) Statement of retained earnings
Answer: a) Income statement
The ratio that measures a company’s ability to convert its inventory into sales is called:
a) Return on assets (ROA)
b) Gross margin ratio
c) Inventory turnover ratio
d) Debt-to-equity ratio
Answer: c) Inventory turnover ratio
The formula for calculating the debt-to-equity ratio is:
a) Total debt / Total assets
b) Total debt / Shareholders’ equity
c) Total debt / Net income
d) Total debt / Total liabilities
Answer: b) Total debt / Shareholders’ equity
Which financial ratio measures a company’s ability to generate profit from its investments in fixed assets?
a) Return on investment (ROI)
b) Gross margin ratio
c) Debt ratio
d) Current ratio
Answer: a) Return on investment (ROI)
The statement of cash flows reports cash flows from which three main activities?
a) Operating, investing, and financing activities
b) Revenue, expenses, and net income
c) Current assets, fixed assets, and intangible assets
d) Debt, equity, and retained earnings
Answer: a) Operating, investing, and financing activities
The ratio that measures the percentage of each sales dollar that represents profit after deducting all expenses is called:
a) Return on assets (ROA)
b) Gross margin ratio
c) Profit margin ratio
d) Quick ratio
Answer: c) Profit margin ratio
The formula for calculating the quick ratio is:
a) (Current assets – Inventory) / Current liabilities
b) Current assets / Current liabilities
c) Net income / Total equity
d) Gross profit / Total revenue
Answer: a) (Current assets – Inventory) / Current liabilities
Financial Analysis MCQs
Which financial ratio measures a company’s ability to meet its short-term obligations using its most liquid assets?
a) Return on investment (ROI)
b) Debt-to-equity ratio
c) Quick ratio
d) Gross margin ratio
Answer: c) Quick ratio
The ratio that measures the proportion of a company’s financing provided by debt versus equity is called:
a) Debt ratio
b) Return on investment (ROI)
c) Current ratio
d) Interest coverage ratio
Answer: a) Debt ratio
The formula for calculating the debt ratio is:
a) Total debt / Total assets
b) Total debt / Shareholders’ equity
c) Total debt / Net income
d) Total debt / Total liabilities
Answer: a) Total debt / Total assets
Which financial statement provides information about a company’s sources and uses of cash during a specific period?
a) Income statement
b) Balance sheet
c) Statement of cash flows
d) Statement of retained earnings
Answer: c) Statement of cash flows
The ratio that measures the percentage of each sales dollar that remains after deducting the cost of goods sold is called:
a) Return on assets (ROA)
b) Gross margin ratio
c) Profit margin ratio
d) Inventory turnover ratio
Answer: b) Gross margin ratio
The formula for calculating return on assets (ROA) is:
a) Net income / Total assets
b) Net income / Shareholders’ equity
c) Net income / Total revenue
d) Net income / Total liabilities
Answer: a) Net income / Total assets
Which financial ratio measures a company’s ability to generate profit from its investments in total capital employed?
a) Return on investment (ROI)
b) Gross margin ratio
c) Current ratio
d) Debt ratio
Answer: a) Return on investment (ROI)
The ratio that measures a company’s ability to cover its current liabilities with its most liquid assets is called:
a) Debt-to-equity ratio
b) Gross margin ratio
c) Current ratio
d) Interest coverage ratio
Answer: c) Current ratio
The formula for calculating the gross margin ratio is:
a) (Revenue – Cost of goods sold) / Revenue
b) Net income / Total equity
c) (Net income – Dividends) / Total assets
d) (Total assets – Total liabilities) / Total equity
Answer: a) (Revenue – Cost of goods sold) / Revenue
Which financial statement provides a summary of changes in a company’s retained earnings over a specific period?
a) Income statement
b) Balance sheet
c) Statement of cash flows
d) Statement of retained earnings
Answer: d) Statement of retained earnings
Financial Analysis MCQs
The ratio that measures a company’s ability to generate profit from its equity investment is called:
a) Return on investment (ROI)
b) Debt-to-equity ratio
c) Current ratio
d) Interest coverage ratio
Answer: a) Return on investment (ROI)
The formula for calculating the return on equity (ROE) is:
a) Net income / Total assets
b) Net income / Shareholders’ equity
c) Net income / Total revenue
d) Net income / Total liabilities
Answer: b) Net income / Shareholders’ equity
Which financial ratio measures the extent to which a company relies on debt financing?
a) Debt ratio
b) Gross margin ratio
c) Quick ratio
d) Return on assets (ROA)
Answer: a) Debt ratio
The ratio that measures the efficiency of a company’s management in generating profits from its resources is called:
a) Return on investment (ROI)
b) Debt-to-equity ratio
c) Profit margin ratio
d) Current ratio
Answer: c) Profit margin ratio
The formula for calculating the inventory turnover ratio is:
a) Cost of goods sold / Average inventory
b) Net income / Total equity
c) Gross profit / Total revenue
d) (Total assets – Total liabilities) / Total equity
Answer: a) Cost of goods sold / Average inventory
Which financial statement provides information about a company’s equity, including its issued shares and retained earnings?
a) Income statement
b) Balance sheet
c) Statement of cash flows
d) Statement of retained earnings
Answer: b) Balance sheet
The ratio that measures the proportion of a company’s earnings that are distributed as dividends is called:
a) Dividend yield ratio
b) Debt ratio
c) Asset turnover ratio
d) Current ratio
Answer: a) Dividend yield ratio
The formula for calculating the dividend yield ratio is:
a) Dividends per share / Stock price per share
b) Net income / Total equity
c) Gross margin ratio / Total revenue
d) (Total liabilities – Total assets) / Total equity
Answer: a) Dividends per share / Stock price per share
Which financial ratio measures the overall profitability of a company by comparing its net income to its total assets?
a) Return on investment (ROI)
b) Debt-to-equity ratio
c) Current ratio
d) Return on assets (ROA)
Answer: d) Return on assets (ROA)
The ratio that measures the proportion of a company’s earnings distributed as dividends to its shareholders is called:
a) Dividend payout ratio
b) Gross margin ratio
c) Quick ratio
d) Interest coverage ratio
Answer: a) Dividend payout ratio