WGU D775
WGU D775 Introduction to Business Finance | PA
(Performance Assessment) | Questions and Correct
Answers plus Rationale | New 2026/2027 Update
Graded A+
SECTION 1: FINANCIAL STATEMENT ANALYSIS AND RATIOS (Questions 1-20)
1. A company reports current assets of $150,000 and current liabilities of $100,000. What is the
current ratio?
• A) 1.0
• B) 1.5
• C) 2.0
• D) 0.67
Correct answer: B) 1.5
Rationale: The current ratio is calculated as current assets divided by current liabilities ($150,000 /
$100,000 = 1.5). This measures the company's ability to cover short-term obligations with short-term
assets. A ratio above 1.0 indicates the company can meet its short-term liabilities .
2. Which financial statement provides a snapshot of a company's assets, liabilities, and equity at a
specific point in time?
• A) Income Statement
• B) Statement of Cash Flows
• C) Balance Sheet
• D) Statement of Retained Earnings
Correct answer: C) Balance Sheet
Rationale: The balance sheet reports a company's financial position on a specific date, detailing
what the company owns (assets), owes (liabilities), and the shareholders' claim (equity). The income
statement covers a period of time .
3. Which of the following is NOT a component of the DuPont Identity?
• A) Profit Margin
• B) Asset Turnover
• C) Equity Multiplier
• D) Dividend Payout Ratio
, WGU D775
Correct answer: D) Dividend Payout Ratio
Rationale: The DuPont Identity decomposes Return on Equity (ROE) into three components: Profit
Margin, Asset Turnover, and Equity Multiplier. The dividend payout ratio is not part of this
decomposition .
4. What does the price-earnings (P/E) ratio indicate?
• A) The amount of dividends paid per share
• B) The market's valuation of a company's earnings
• C) The company's leverage
• D) The company's liquidity
Correct answer: B) The market's valuation of a company's earnings
Rationale: The P/E ratio shows how much investors are willing to pay per dollar of earnings. A higher
P/E often suggests that investors expect higher growth in the future .
5. What is the primary goal of financial management?
• A) Maximizing sales revenue
• B) Maximizing shareholder wealth
• C) Minimizing operational costs
• D) Increasing market share
Correct answer: B) Maximizing shareholder wealth
Rationale: The primary objective of financial management is to maximize the value of the firm for its
owners, which is reflected in the market price of the company's stock. This encompasses
profitability, growth, and risk management .
6. The matching principle in accounting requires that:
• A) Assets equal liabilities plus equity
• B) Expenses are recognized in the same period as the revenues they help generate
• C) Revenue is recognized when cash is received
• D) Inventory is valued at the lower of cost or market
Correct answer: B) Expenses are recognized in the same period as the revenues they help generate
Rationale: The matching principle is a fundamental accounting concept that ensures expenses are
recorded in the same accounting period as the revenues they helped produce, providing an accurate
picture of profitability for that period .
, WGU D775
7. A company has a profit margin of 10%, asset turnover of 0.8, and an equity multiplier of 1.5.
What is the Return on Equity (ROE)?
• A) 8%
• B) 10%
• C) 12%
• D) 15%
Correct answer: C) 12%
Rationale: ROE using the DuPont Identity is calculated as Profit Margin × Asset Turnover × Equity
Multiplier. (0.10 × 0.8 × 1.5) = 0.12 or 12% .
8. A company has current assets of $500,000 and current liabilities of $250,000. What is the
current ratio?
• A) 0.5
• B) 1.5
• C) 3.0
• D) 2.0
Correct answer: D) 2.0
Rationale: The current ratio is calculated as Current Assets ÷ Current Liabilities = $500,000 ÷
$250,000 = 2.0. This means the company has $2 in current assets for every $1 of current liabilities,
indicating good short-term liquidity .
9. What does the term "working capital" refer to?
• A) Total assets minus total liabilities
• B) Long-term assets minus long-term liabilities
• C) Cash and cash equivalents only
• D) Total revenue minus total expenses
• E) Current assets minus current liabilities
Correct answer: E) Current assets minus current liabilities
Rationale: Working capital = Current Assets - Current Liabilities. It measures a company's short-term
operational liquidity and its ability to meet short-term obligations. Positive working capital indicates
the firm can cover its near-term debts .
10. Which financial statement shows a company's profitability over a period of time?
• A) Balance Sheet
WGU D775 Introduction to Business Finance | PA
(Performance Assessment) | Questions and Correct
Answers plus Rationale | New 2026/2027 Update
Graded A+
SECTION 1: FINANCIAL STATEMENT ANALYSIS AND RATIOS (Questions 1-20)
1. A company reports current assets of $150,000 and current liabilities of $100,000. What is the
current ratio?
• A) 1.0
• B) 1.5
• C) 2.0
• D) 0.67
Correct answer: B) 1.5
Rationale: The current ratio is calculated as current assets divided by current liabilities ($150,000 /
$100,000 = 1.5). This measures the company's ability to cover short-term obligations with short-term
assets. A ratio above 1.0 indicates the company can meet its short-term liabilities .
2. Which financial statement provides a snapshot of a company's assets, liabilities, and equity at a
specific point in time?
• A) Income Statement
• B) Statement of Cash Flows
• C) Balance Sheet
• D) Statement of Retained Earnings
Correct answer: C) Balance Sheet
Rationale: The balance sheet reports a company's financial position on a specific date, detailing
what the company owns (assets), owes (liabilities), and the shareholders' claim (equity). The income
statement covers a period of time .
3. Which of the following is NOT a component of the DuPont Identity?
• A) Profit Margin
• B) Asset Turnover
• C) Equity Multiplier
• D) Dividend Payout Ratio
, WGU D775
Correct answer: D) Dividend Payout Ratio
Rationale: The DuPont Identity decomposes Return on Equity (ROE) into three components: Profit
Margin, Asset Turnover, and Equity Multiplier. The dividend payout ratio is not part of this
decomposition .
4. What does the price-earnings (P/E) ratio indicate?
• A) The amount of dividends paid per share
• B) The market's valuation of a company's earnings
• C) The company's leverage
• D) The company's liquidity
Correct answer: B) The market's valuation of a company's earnings
Rationale: The P/E ratio shows how much investors are willing to pay per dollar of earnings. A higher
P/E often suggests that investors expect higher growth in the future .
5. What is the primary goal of financial management?
• A) Maximizing sales revenue
• B) Maximizing shareholder wealth
• C) Minimizing operational costs
• D) Increasing market share
Correct answer: B) Maximizing shareholder wealth
Rationale: The primary objective of financial management is to maximize the value of the firm for its
owners, which is reflected in the market price of the company's stock. This encompasses
profitability, growth, and risk management .
6. The matching principle in accounting requires that:
• A) Assets equal liabilities plus equity
• B) Expenses are recognized in the same period as the revenues they help generate
• C) Revenue is recognized when cash is received
• D) Inventory is valued at the lower of cost or market
Correct answer: B) Expenses are recognized in the same period as the revenues they help generate
Rationale: The matching principle is a fundamental accounting concept that ensures expenses are
recorded in the same accounting period as the revenues they helped produce, providing an accurate
picture of profitability for that period .
, WGU D775
7. A company has a profit margin of 10%, asset turnover of 0.8, and an equity multiplier of 1.5.
What is the Return on Equity (ROE)?
• A) 8%
• B) 10%
• C) 12%
• D) 15%
Correct answer: C) 12%
Rationale: ROE using the DuPont Identity is calculated as Profit Margin × Asset Turnover × Equity
Multiplier. (0.10 × 0.8 × 1.5) = 0.12 or 12% .
8. A company has current assets of $500,000 and current liabilities of $250,000. What is the
current ratio?
• A) 0.5
• B) 1.5
• C) 3.0
• D) 2.0
Correct answer: D) 2.0
Rationale: The current ratio is calculated as Current Assets ÷ Current Liabilities = $500,000 ÷
$250,000 = 2.0. This means the company has $2 in current assets for every $1 of current liabilities,
indicating good short-term liquidity .
9. What does the term "working capital" refer to?
• A) Total assets minus total liabilities
• B) Long-term assets minus long-term liabilities
• C) Cash and cash equivalents only
• D) Total revenue minus total expenses
• E) Current assets minus current liabilities
Correct answer: E) Current assets minus current liabilities
Rationale: Working capital = Current Assets - Current Liabilities. It measures a company's short-term
operational liquidity and its ability to meet short-term obligations. Positive working capital indicates
the firm can cover its near-term debts .
10. Which financial statement shows a company's profitability over a period of time?
• A) Balance Sheet
