WGU C214 OA Financial Management
Exam Questions and Verified Answers,
With rationales 2026\2027 update
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Questions and Ansẉers
format set of multiple-choice
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1. Which of the following is a primary goal of financial management
in a publicly traded firm?
A) Maximizing revenue
B) Maximizing market share
C) Maximizing shareholder wealth
D) Minimizing costs
Answer: C
Rationale: The primary goal of financial management is to maximize
shareholder wealth, which is typically measured by the firm's stock
price. This takes into account both short-term and long-term cash
flows, timing, and risk.
2. Agency problems in a corporation refer to conflicts of interest
between:
A) Shareholders and managers
B) Debtors and creditors
C) Managers and employees
D) The firm and its suppliers
Answer: A
Rationale: An agency problem occurs when managers (agents) make
decisions that benefit themselves rather than the shareholders
(principals) who own the firm.
3. Which financial statement shows 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
,Rationale: The balance sheet provides a snapshot of a company's
assets, liabilities, and equity at a specific date, unlike the income
statement or cash flow statement which cover a period of time.
4. A company has a current ratio of 1.5. If the company uses cash to
pay off some of its accounts payable, what will happen to the
current ratio?
A) It will increase
B) It will decrease
C) It will remain the same
D) It will become zero
Answer: A
Rationale: If the current ratio is greater than 1, paying off current
liabilities with current assets (cash) removes an equal amount from
both the numerator and denominator. Since the denominator is
smaller proportionally, the ratio increases. (e.g., 150/100 = 1.5;
subtract 50 from both: 100/50 = 2.0).
5. Which of the following is NOT a cash flow included in the
Statement of Cash Flows?
A) Operating Cash Flows
B) Investing Cash Flows
C) Financing Cash Flows
D) Accrual Cash Flows
Answer: D
Rationale: The Statement of Cash Flows is divided into three
sections: Operating, Investing, and Financing. Accrual accounting
does not deal directly with cash flows.
6. Net income divided by total sales is the definition of:
A) Return on Assets (ROA)
B) Return on Equity (ROE)
C) Profit Margin
D) Asset Turnover
, Answer: C
Rationale: Profit margin measures how much out of every dollar of
sales a company actually keeps in earnings. It is calculated as Net
Income / Sales.
7. The DuPont equation breaks down Return on Equity (ROE) into
which three components?
A) Profit margin, asset turnover, and equity multiplier
B) Profit margin, debt ratio, and total asset turnover
C) Operating margin, inventory turnover, and equity multiplier
D) Gross margin, asset turnover, and debt-to-equity
Answer: A
Rationale: The DuPont identity is: ROE = (Net Income / Sales) ×
(Sales / Total Assets) × (Total Assets / Total Equity), which equals
Profit Margin × Asset Turnover × Equity Multiplier.
8. Which of the following represents a use of cash?
A) Decrease in inventory
B) Increase in accounts payable
C) Increase in accounts receivable
D) Decrease in fixed assets
Answer: C
Rationale: An increase in accounts receivable means the company is
extending more credit to customers and not collecting cash
immediately, representing a use of cash.
9. Free Cash Flow (FCF) is typically calculated as:
A) Operating Cash Flow + Net Capital Spending - Changes in Net
Working Capital
B) Net Income + Depreciation
C) Operating Cash Flow - Dividends
D) EBIT - Taxes + Depreciation
Answer: A
Exam Questions and Verified Answers,
With rationales 2026\2027 update
This Exam contains:
Guarantee passing score
Questions and Ansẉers
format set of multiple-choice
Expert-Verified rationales
Verified ẉith trusted textbooks
,───────────────────────────────────────────────────────
─
1. Which of the following is a primary goal of financial management
in a publicly traded firm?
A) Maximizing revenue
B) Maximizing market share
C) Maximizing shareholder wealth
D) Minimizing costs
Answer: C
Rationale: The primary goal of financial management is to maximize
shareholder wealth, which is typically measured by the firm's stock
price. This takes into account both short-term and long-term cash
flows, timing, and risk.
2. Agency problems in a corporation refer to conflicts of interest
between:
A) Shareholders and managers
B) Debtors and creditors
C) Managers and employees
D) The firm and its suppliers
Answer: A
Rationale: An agency problem occurs when managers (agents) make
decisions that benefit themselves rather than the shareholders
(principals) who own the firm.
3. Which financial statement shows 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
,Rationale: The balance sheet provides a snapshot of a company's
assets, liabilities, and equity at a specific date, unlike the income
statement or cash flow statement which cover a period of time.
4. A company has a current ratio of 1.5. If the company uses cash to
pay off some of its accounts payable, what will happen to the
current ratio?
A) It will increase
B) It will decrease
C) It will remain the same
D) It will become zero
Answer: A
Rationale: If the current ratio is greater than 1, paying off current
liabilities with current assets (cash) removes an equal amount from
both the numerator and denominator. Since the denominator is
smaller proportionally, the ratio increases. (e.g., 150/100 = 1.5;
subtract 50 from both: 100/50 = 2.0).
5. Which of the following is NOT a cash flow included in the
Statement of Cash Flows?
A) Operating Cash Flows
B) Investing Cash Flows
C) Financing Cash Flows
D) Accrual Cash Flows
Answer: D
Rationale: The Statement of Cash Flows is divided into three
sections: Operating, Investing, and Financing. Accrual accounting
does not deal directly with cash flows.
6. Net income divided by total sales is the definition of:
A) Return on Assets (ROA)
B) Return on Equity (ROE)
C) Profit Margin
D) Asset Turnover
, Answer: C
Rationale: Profit margin measures how much out of every dollar of
sales a company actually keeps in earnings. It is calculated as Net
Income / Sales.
7. The DuPont equation breaks down Return on Equity (ROE) into
which three components?
A) Profit margin, asset turnover, and equity multiplier
B) Profit margin, debt ratio, and total asset turnover
C) Operating margin, inventory turnover, and equity multiplier
D) Gross margin, asset turnover, and debt-to-equity
Answer: A
Rationale: The DuPont identity is: ROE = (Net Income / Sales) ×
(Sales / Total Assets) × (Total Assets / Total Equity), which equals
Profit Margin × Asset Turnover × Equity Multiplier.
8. Which of the following represents a use of cash?
A) Decrease in inventory
B) Increase in accounts payable
C) Increase in accounts receivable
D) Decrease in fixed assets
Answer: C
Rationale: An increase in accounts receivable means the company is
extending more credit to customers and not collecting cash
immediately, representing a use of cash.
9. Free Cash Flow (FCF) is typically calculated as:
A) Operating Cash Flow + Net Capital Spending - Changes in Net
Working Capital
B) Net Income + Depreciation
C) Operating Cash Flow - Dividends
D) EBIT - Taxes + Depreciation
Answer: A
