Financial Statement Analysis MCQ Questions and Answers for Practice

1. What is the primary purpose of financial statement analysis?

1. To evaluate a company’s profitability
2. To determine the company’s tax liability
3. To assess the company's liquidity and solvency
4. To calculate a company’s debt-to-equity ratio

2. The "price-to-earnings" (P/E) ratio is most commonly used to evaluate:

1. Liquidity
2. Profitability
3. Market valuation of a company’s stock
4. Debt levels

3. What does "return on assets" (ROA) measure?

1. The profitability of a company relative to its total assets
2. The market value of a company’s stock
3. The dividend policy of the company
4. The risk of the company’s debt

4. The "debt-to-equity ratio" indicates:

1. The proportion of debt and equity financing used by a company
2. The ability of a company to meet short-term obligations
3. The company’s profitability
4. The level of operational efficiency

5. Which of the following is a common indicator of a company's solvency?

1. Return on equity
2. Quick ratio
3. Interest coverage ratio
4. Current ratio

6. What does the "gross profit margin" ratio measure?

1. The percentage of profit a company makes after deducting its direct costs
2. The efficiency of a company’s asset management
3. The company’s ability to cover interest expenses
4. The percentage of profits from total sales

7. Which of the following ratios is used to assess the relationship between a company’s debt and its equity?

1. Return on equity
2. Debt-to-equity ratio
3. Current ratio
4. Asset turnover ratio

8. What is the "return on equity" (ROE) ratio used for?

1. To measure the profitability of a company relative to its equity
2. To determine the liquidity of a company
3. To assess a company’s operational efficiency
4. To evaluate a company’s debt structure

9. What is a "cash flow statement" used to analyze?

1. A company’s profitability
2. The sources and uses of cash over a period of time
3. A company’s stock price performance
4. A company’s assets and liabilities

10. What is the primary purpose of the "operating cash flow" ratio?

1. To measure the cash flow from operating activities relative to current liabilities
2. To measure profitability relative to equity
3. To assess the return on assets
4. To determine a company’s debt levels

11. What is the formula for calculating "earnings per share" (EPS)?

1. Net income / Total number of outstanding shares
2. Operating income / Total assets
3. Net income / Shareholder equity
4. Operating income / Current liabilities

12. Which of the following is a key financial statement used in financial analysis?

1. Balance sheet
2. Market share
3. Dividend policy statement
4. Business strategy document

13. What does the "inventory turnover ratio" measure?

1. The number of times a company’s inventory is sold and replaced in a given period
2. The rate at which a company generates profits
3. The efficiency of asset management
4. The liquidity of a company’s assets

14. Which of the following financial ratios is used to assess liquidity?

1. Debt ratio
2. Quick ratio
3. Return on assets
4. Price-to-earnings ratio

15. What is the formula for the "debt ratio"?

1. Total debt / Total assets
2. Total liabilities / Shareholder equity
3. Current liabilities / Total assets
4. Net income / Shareholder equity