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WGU C214 FINANCIAL MANAGEMENT OBJECTIVE
ASSESSMENT ACTUAL EXAM 2026/2027 | Verified Answers
| Updated | Pass Guaranteed - A+ Graded
[Section 1: Financial Statement Analysis (Q1-15)]
Q1. Which financial ratio is calculated as Current Assets divided by Current Liabilities?
A. Quick ratio
B. Current ratio [CORRECT]
C. Cash ratio
D. Debt ratio
Rationale: The current ratio measures liquidity by comparing current assets to current
liabilities. The quick ratio excludes inventory, the cash ratio uses only cash and
marketable securities, and the debt ratio measures solvency rather than liquidity.
Correct Answer: B
Q2. The Times Interest Earned (TIE) ratio is calculated as:
A. EBIT divided by interest expense [CORRECT]
B. Net income divided by interest expense
C. EBITDA divided by total debt
D. Operating cash flow divided by interest expense
Rationale: TIE = EBIT / Interest Expense, measuring the firm's ability to cover interest
payments from operating earnings before taxes and interest. Net income is already
reduced by interest and taxes, making option B incorrect.
Correct Answer: A
Q3. Apex Manufacturing reports a current ratio of 2.5 and a quick ratio of 1.2. What
does this most likely indicate about the company's financial position?
A. The company has excessive long-term debt
B. The company maintains a significant investment in inventory [CORRECT]
C. The company has no accounts receivable
D. The company is experiencing negative cash flow
,2
Rationale: The gap between current ratio (2.5) and quick ratio (1.2) indicates
substantial inventory holdings (1.3 difference), as quick ratio excludes inventory from
current assets. This does not indicate negative cash flow or absence of receivables.
Correct Answer: B
Q4. Using DuPont analysis, if a company improves its profit margin while keeping
total asset turnover and equity multiplier constant, what happens to ROE?
A. ROE decreases
B. ROE remains unchanged
C. ROE increases [CORRECT]
D. ROE becomes negative
Rationale: ROE = Profit Margin × Total Asset Turnover × Equity Multiplier. If PM
increases while TAT and EM remain constant, ROE must increase proportionally.
Options A and D incorrectly suggest inverse relationships.
Correct Answer: C
Q5. Sterling Corp. has current assets of $800,000 and current liabilities of $400,000.
What is the company's current ratio?
A. 1.50
B. 2.00 [CORRECT]
C. 2.50
D. 0.50
Rationale: Current Ratio = CA / CL = $800,000 / $400,000 = 2.00. Option A uses quick
ratio logic with estimated inventory, D inverts the ratio, and C uses incorrect liability
figures.
Correct Answer: B
Q6. Horizon Industries shows declining inventory turnover and increasing days sales
outstanding over three consecutive years, while sales remain flat. What is the most
likely diagnosis?
A. The company is improving its cash conversion cycle
B. The company may be experiencing obsolete inventory and collection problems
[CORRECT]
, 3
C. The company has reduced its cost of goods sold
D. The company is successfully extending credit terms to boost sales
Rationale: Declining inventory turnover suggests slow-moving or obsolete inventory;
increasing DSO indicates slower collections. Both are warning signs of working
capital inefficiency, not successful credit extension.
Correct Answer: B
Q7. Which of the following is classified as a market ratio?
A. Debt-to-equity ratio
B. Return on assets
C. Price-to-earnings ratio [CORRECT]
D. Inventory turnover
Rationale: Market ratios (P/E, M/B, dividend yield) relate stock price to financial
metrics. Debt-to-equity is a solvency ratio, ROA is profitability, and inventory
turnover is an efficiency ratio.
Correct Answer: C
Q8. A company reports a profit margin of 12%, total asset turnover of 1.5, and an
equity multiplier of 1.8. Using the DuPont identity, what is the company's return on
equity?
A. 24.4%
B. 32.4% [CORRECT]
C. 18.0%
D. 40.5%
Rationale: ROE = PM × TAT × EM = 0.12 × 1.5 × 1.8 = 0.324 or 32.4%. Option A
omits the equity multiplier, C uses only PM × TAT, and D incorrectly adds rather than
multiplies the components.
Correct Answer: B
Q9. Two companies in the same industry have identical ROE figures. Company A
achieves this through high profit margin and low asset turnover, while Company B
achieves it through low profit margin and high asset turnover. What does this
suggest?
WGU C214 FINANCIAL MANAGEMENT OBJECTIVE
ASSESSMENT ACTUAL EXAM 2026/2027 | Verified Answers
| Updated | Pass Guaranteed - A+ Graded
[Section 1: Financial Statement Analysis (Q1-15)]
Q1. Which financial ratio is calculated as Current Assets divided by Current Liabilities?
A. Quick ratio
B. Current ratio [CORRECT]
C. Cash ratio
D. Debt ratio
Rationale: The current ratio measures liquidity by comparing current assets to current
liabilities. The quick ratio excludes inventory, the cash ratio uses only cash and
marketable securities, and the debt ratio measures solvency rather than liquidity.
Correct Answer: B
Q2. The Times Interest Earned (TIE) ratio is calculated as:
A. EBIT divided by interest expense [CORRECT]
B. Net income divided by interest expense
C. EBITDA divided by total debt
D. Operating cash flow divided by interest expense
Rationale: TIE = EBIT / Interest Expense, measuring the firm's ability to cover interest
payments from operating earnings before taxes and interest. Net income is already
reduced by interest and taxes, making option B incorrect.
Correct Answer: A
Q3. Apex Manufacturing reports a current ratio of 2.5 and a quick ratio of 1.2. What
does this most likely indicate about the company's financial position?
A. The company has excessive long-term debt
B. The company maintains a significant investment in inventory [CORRECT]
C. The company has no accounts receivable
D. The company is experiencing negative cash flow
,2
Rationale: The gap between current ratio (2.5) and quick ratio (1.2) indicates
substantial inventory holdings (1.3 difference), as quick ratio excludes inventory from
current assets. This does not indicate negative cash flow or absence of receivables.
Correct Answer: B
Q4. Using DuPont analysis, if a company improves its profit margin while keeping
total asset turnover and equity multiplier constant, what happens to ROE?
A. ROE decreases
B. ROE remains unchanged
C. ROE increases [CORRECT]
D. ROE becomes negative
Rationale: ROE = Profit Margin × Total Asset Turnover × Equity Multiplier. If PM
increases while TAT and EM remain constant, ROE must increase proportionally.
Options A and D incorrectly suggest inverse relationships.
Correct Answer: C
Q5. Sterling Corp. has current assets of $800,000 and current liabilities of $400,000.
What is the company's current ratio?
A. 1.50
B. 2.00 [CORRECT]
C. 2.50
D. 0.50
Rationale: Current Ratio = CA / CL = $800,000 / $400,000 = 2.00. Option A uses quick
ratio logic with estimated inventory, D inverts the ratio, and C uses incorrect liability
figures.
Correct Answer: B
Q6. Horizon Industries shows declining inventory turnover and increasing days sales
outstanding over three consecutive years, while sales remain flat. What is the most
likely diagnosis?
A. The company is improving its cash conversion cycle
B. The company may be experiencing obsolete inventory and collection problems
[CORRECT]
, 3
C. The company has reduced its cost of goods sold
D. The company is successfully extending credit terms to boost sales
Rationale: Declining inventory turnover suggests slow-moving or obsolete inventory;
increasing DSO indicates slower collections. Both are warning signs of working
capital inefficiency, not successful credit extension.
Correct Answer: B
Q7. Which of the following is classified as a market ratio?
A. Debt-to-equity ratio
B. Return on assets
C. Price-to-earnings ratio [CORRECT]
D. Inventory turnover
Rationale: Market ratios (P/E, M/B, dividend yield) relate stock price to financial
metrics. Debt-to-equity is a solvency ratio, ROA is profitability, and inventory
turnover is an efficiency ratio.
Correct Answer: C
Q8. A company reports a profit margin of 12%, total asset turnover of 1.5, and an
equity multiplier of 1.8. Using the DuPont identity, what is the company's return on
equity?
A. 24.4%
B. 32.4% [CORRECT]
C. 18.0%
D. 40.5%
Rationale: ROE = PM × TAT × EM = 0.12 × 1.5 × 1.8 = 0.324 or 32.4%. Option A
omits the equity multiplier, C uses only PM × TAT, and D incorrectly adds rather than
multiplies the components.
Correct Answer: B
Q9. Two companies in the same industry have identical ROE figures. Company A
achieves this through high profit margin and low asset turnover, while Company B
achieves it through low profit margin and high asset turnover. What does this
suggest?
