FINANCIAL STATEMENT ANALYSIS EXAMINATION
QUESTIONS AND CORRECT ANSWER WITH
EXPLANATION|GRADED A+ SDUTY GUIDE SOUTHERN
NEW HAMPSHIRE UNIVERSITY
1. Financial statement analysis is primarily used to:
A. Design buildings
B. Evaluate a company’s financial performance and position
C. Replace accounting records
D. Eliminate taxation
Answer: B
Rationale: It helps assess profitability, liquidity, and stability.
2. The three main financial statements are:
A. Budget, invoice, receipt
B. Income statement, balance sheet, cash flow statement
C. Tax return, payroll, audit report
D. Inventory list, ledger, journal
Answer: B
Rationale: These are the core financial reports.
3. The balance sheet shows financial position at:
A. A point in time
B. Over a period
C. Random intervals
D. Future projections only
Answer: A
Rationale: It is a snapshot of financial position.
4. The income statement measures:
,A. Cash position only
B. Profitability over a period
C. Asset values only
D. Equity structure only
Answer: B
Rationale: It shows revenues and expenses.
5. The cash flow statement shows:
A. Only profits
B. Cash inflows and outflows
C. Inventory levels only
D. Tax liabilities only
Answer: B
Rationale: It tracks movement of cash.
6. Net income is calculated as:
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 = 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 − 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
A. Revenue − Expenses
B. Assets − Liabilities
C. Cash − Debt
D. Equity − Revenue
Answer: A
Rationale: Profit after expenses.
7. The accounting equation is:
𝐴𝑠𝑠𝑒𝑡𝑠 = 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 + 𝐸𝑞𝑢𝑖𝑡𝑦
A. Assets = Liabilities + Equity
B. Revenue = Cash + Expenses
C. Equity = Revenue − Cash
D. Assets = Income − Tax
Answer: A
Rationale: Fundamental financial structure.
, 8. Liquidity refers to:
A. Long-term profitability
B. Ability to meet short-term obligations
C. Asset appreciation
D. Dividend payout
Answer: B
Rationale: Liquidity is short-term financial health.
9. Profitability refers to:
A. Ability to generate earnings
B. Cash only
C. Debt repayment only
D. Inventory turnover only
Answer: A
Rationale: Measures income generation efficiency.
10. Solvency refers to:
A. Short-term cash flow
B. Long-term financial stability
C. Inventory levels
D. Marketing success
Answer: B
Rationale: Solvency is long-term viability.
11. Current ratio formula is:
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
A. Current Assets ÷ Current Liabilities
B. Revenue ÷ Expenses
C. Cash ÷ Debt
D. Equity ÷ Assets
Answer: A
Rationale: Measures liquidity strength.
QUESTIONS AND CORRECT ANSWER WITH
EXPLANATION|GRADED A+ SDUTY GUIDE SOUTHERN
NEW HAMPSHIRE UNIVERSITY
1. Financial statement analysis is primarily used to:
A. Design buildings
B. Evaluate a company’s financial performance and position
C. Replace accounting records
D. Eliminate taxation
Answer: B
Rationale: It helps assess profitability, liquidity, and stability.
2. The three main financial statements are:
A. Budget, invoice, receipt
B. Income statement, balance sheet, cash flow statement
C. Tax return, payroll, audit report
D. Inventory list, ledger, journal
Answer: B
Rationale: These are the core financial reports.
3. The balance sheet shows financial position at:
A. A point in time
B. Over a period
C. Random intervals
D. Future projections only
Answer: A
Rationale: It is a snapshot of financial position.
4. The income statement measures:
,A. Cash position only
B. Profitability over a period
C. Asset values only
D. Equity structure only
Answer: B
Rationale: It shows revenues and expenses.
5. The cash flow statement shows:
A. Only profits
B. Cash inflows and outflows
C. Inventory levels only
D. Tax liabilities only
Answer: B
Rationale: It tracks movement of cash.
6. Net income is calculated as:
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 = 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 − 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
A. Revenue − Expenses
B. Assets − Liabilities
C. Cash − Debt
D. Equity − Revenue
Answer: A
Rationale: Profit after expenses.
7. The accounting equation is:
𝐴𝑠𝑠𝑒𝑡𝑠 = 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 + 𝐸𝑞𝑢𝑖𝑡𝑦
A. Assets = Liabilities + Equity
B. Revenue = Cash + Expenses
C. Equity = Revenue − Cash
D. Assets = Income − Tax
Answer: A
Rationale: Fundamental financial structure.
, 8. Liquidity refers to:
A. Long-term profitability
B. Ability to meet short-term obligations
C. Asset appreciation
D. Dividend payout
Answer: B
Rationale: Liquidity is short-term financial health.
9. Profitability refers to:
A. Ability to generate earnings
B. Cash only
C. Debt repayment only
D. Inventory turnover only
Answer: A
Rationale: Measures income generation efficiency.
10. Solvency refers to:
A. Short-term cash flow
B. Long-term financial stability
C. Inventory levels
D. Marketing success
Answer: B
Rationale: Solvency is long-term viability.
11. Current ratio formula is:
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
A. Current Assets ÷ Current Liabilities
B. Revenue ÷ Expenses
C. Cash ÷ Debt
D. Equity ÷ Assets
Answer: A
Rationale: Measures liquidity strength.
