Financial Statement Analysis Multiple Choice Questions and Answers for Practice

16. Which ratio would be most useful in determining how effectively a company is using its resources?

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

17. The "return on capital employed" (ROCE) ratio is used to assess:

1. How well a company generates profits from its capital
2. The liquidity of a company
3. The cost of debt for a company
4. The risk of financial distress

18. What does the "operating profit margin" ratio indicate?

1. The percentage of profit a company makes after all expenses
2. The percentage of revenue that exceeds the cost of goods sold
3. The company's ability to generate earnings before interest and taxes
4. The company’s solvency ratio

19. What is the "earnings before interest and taxes" (EBIT) used to measure?

1. The company’s overall profitability
2. The company’s operating performance without interest or tax effects
3. The company's earnings per share
4. The company's liquidity position

20. Which of the following is an example of "non-operating income"?

1. Sales revenue
2. Interest income from investments
3. Revenue from product sales
4. Cost of goods sold

21. What does the "acid-test ratio" (quick ratio) exclude from the calculation?

1. Cash and cash equivalents
2. Inventory
3. Total liabilities
4. Non-current assets

22. What is a "consolidated financial statement"?

1. A single financial report that includes the operations of a company and its subsidiaries
2. A balance sheet for a single company
3. A statement that only includes long-term assets
4. A summary of all company dividends

23. What is "liquidity ratio" used to measure?

1. A company's ability to meet long-term obligations
2. A company's profitability
3. A company’s ability to meet short-term obligations
4. A company’s asset management efficiency

24. Which of the following is considered a "non-cash" item in the financial statement?

1. Depreciation
2. Interest expense
3. Dividend payments
4. Tax expenses

25. What does "dividend payout ratio" measure?

1. The proportion of earnings paid out as dividends to shareholders
2. The percentage of debt compared to equity
3. The total number of shares outstanding
4. The earnings per share of the company

26. What is the "gross profit margin" ratio calculated as?

1. Gross profit / Net sales
2. Operating profit / Total assets
3. Net income / Equity
4. Sales revenue / Cost of goods sold

27. Which of the following is true about "current liabilities"?

1. They include debts due within one year
2. They include long-term debts
3. They represent the company’s equity
4. They are the non-cash expenses

28. What is the main objective of "vertical analysis" in financial statement analysis?

1. To compare line items within a single period as a percentage of a base figure
2. To compare financial data across multiple periods
3. To measure profitability ratios
4. To assess the company's debt levels

29. The "price-to-book" (P/B) ratio is used to evaluate:

1. The profitability of a company
2. The market price of a company’s stock relative to its book value
3. The efficiency of a company’s asset management
4. The company’s solvency ratio

30. What is "horizontal analysis" in financial statement analysis?

1. Comparing financial data from different companies
2. Comparing financial data over multiple periods to identify trends
3. Analyzing financial statements for profitability
4. Assessing the liquidity of a company