WGU C214 Financial Management Study Guide
(2026/2027 Syllabus)
100+ Practice Questions with Verified Answers
1. What is the primary goal of financial management?
ANSWER ✓ Maximize shareholder wealth through increasing the stock price and paying
dividends.
2. What is agency theory?
ANSWER ✓ The potential conflict of interest between managers (agents) and
shareholders (principals).
3. What are agency costs?
ANSWER ✓ Costs incurred to align management interests with shareholders, including
monitoring costs and incentive compensation.
4. What is the Sarbanes-Oxley Act?
ANSWER ✓ Legislation passed in 2002 to increase corporate transparency and prevent
accounting fraud.
5. What are the three main financial statements?
ANSWER ✓ Income Statement, Balance Sheet, Statement of Cash Flows.
6. What does the income statement measure?
ANSWER ✓ A company's profitability over a specific period (revenues minus expenses).
7. What is the accounting equation?
ANSWER ✓ Assets = Liabilities + Equity.
8. What is EBITDA?
ANSWER ✓ Earnings Before Interest, Taxes, Depreciation, and Amortization; measures
operating performance.
9. What is working capital?
ANSWER ✓ Current Assets minus Current Liabilities; measures short-term liquidity.
10. What is the current ratio?
ANSWER ✓ Current Assets ÷ Current Liabilities; measures short-term debt-paying
ability.
, 11. What is the quick (acid-test) ratio?
ANSWER ✓ (Current Assets - Inventory) ÷ Current Liabilities; more conservative liquidity
measure.
12. What is inventory turnover?
ANSWER ✓ Cost of Goods Sold ÷ Average Inventory; measures inventory management
efficiency.
13. What is days sales outstanding (DSO)?
ANSWER ✓ (Accounts Receivable ÷ Total Credit Sales) × 365; average collection period.
14. What is total asset turnover?
ANSWER ✓ Sales ÷ Total Assets; measures asset efficiency.
15. What is debt ratio?
ANSWER ✓ Total Debt ÷ Total Assets; measures financial leverage.
16. What is times interest earned (TIE)?
ANSWER ✓ EBIT ÷ Interest Expense; measures ability to pay interest.
17. What is return on equity (ROE)?
ANSWER ✓ Net Income ÷ Shareholder's Equity; measures profitability for shareholders.
18. What is return on assets (ROA)?
ANSWER ✓ Net Income ÷ Total Assets; measures overall asset efficiency.
19. What is the DuPont equation?
ANSWER ✓ ROE = Profit Margin × Total Asset Turnover × Equity Multiplier.
20. What is the price-earnings (P/E) ratio?
ANSWER ✓ Market Price per Share ÷ Earnings per Share; measures valuation.
21. What is the book value per share?
ANSWER ✓ Common Equity ÷ Shares Outstanding.
22. What is market value added (MVA)?
ANSWER ✓ Market Value of Equity - Book Value of Equity.
23. What is economic value added (EVA)?
ANSWER ✓ NOPAT - (WACC × Total Capital); measures economic profit.
24. What is free cash flow (FCF)?
ANSWER ✓ Operating Cash Flow - Capital Expenditures; cash available to investors.
(2026/2027 Syllabus)
100+ Practice Questions with Verified Answers
1. What is the primary goal of financial management?
ANSWER ✓ Maximize shareholder wealth through increasing the stock price and paying
dividends.
2. What is agency theory?
ANSWER ✓ The potential conflict of interest between managers (agents) and
shareholders (principals).
3. What are agency costs?
ANSWER ✓ Costs incurred to align management interests with shareholders, including
monitoring costs and incentive compensation.
4. What is the Sarbanes-Oxley Act?
ANSWER ✓ Legislation passed in 2002 to increase corporate transparency and prevent
accounting fraud.
5. What are the three main financial statements?
ANSWER ✓ Income Statement, Balance Sheet, Statement of Cash Flows.
6. What does the income statement measure?
ANSWER ✓ A company's profitability over a specific period (revenues minus expenses).
7. What is the accounting equation?
ANSWER ✓ Assets = Liabilities + Equity.
8. What is EBITDA?
ANSWER ✓ Earnings Before Interest, Taxes, Depreciation, and Amortization; measures
operating performance.
9. What is working capital?
ANSWER ✓ Current Assets minus Current Liabilities; measures short-term liquidity.
10. What is the current ratio?
ANSWER ✓ Current Assets ÷ Current Liabilities; measures short-term debt-paying
ability.
, 11. What is the quick (acid-test) ratio?
ANSWER ✓ (Current Assets - Inventory) ÷ Current Liabilities; more conservative liquidity
measure.
12. What is inventory turnover?
ANSWER ✓ Cost of Goods Sold ÷ Average Inventory; measures inventory management
efficiency.
13. What is days sales outstanding (DSO)?
ANSWER ✓ (Accounts Receivable ÷ Total Credit Sales) × 365; average collection period.
14. What is total asset turnover?
ANSWER ✓ Sales ÷ Total Assets; measures asset efficiency.
15. What is debt ratio?
ANSWER ✓ Total Debt ÷ Total Assets; measures financial leverage.
16. What is times interest earned (TIE)?
ANSWER ✓ EBIT ÷ Interest Expense; measures ability to pay interest.
17. What is return on equity (ROE)?
ANSWER ✓ Net Income ÷ Shareholder's Equity; measures profitability for shareholders.
18. What is return on assets (ROA)?
ANSWER ✓ Net Income ÷ Total Assets; measures overall asset efficiency.
19. What is the DuPont equation?
ANSWER ✓ ROE = Profit Margin × Total Asset Turnover × Equity Multiplier.
20. What is the price-earnings (P/E) ratio?
ANSWER ✓ Market Price per Share ÷ Earnings per Share; measures valuation.
21. What is the book value per share?
ANSWER ✓ Common Equity ÷ Shares Outstanding.
22. What is market value added (MVA)?
ANSWER ✓ Market Value of Equity - Book Value of Equity.
23. What is economic value added (EVA)?
ANSWER ✓ NOPAT - (WACC × Total Capital); measures economic profit.
24. What is free cash flow (FCF)?
ANSWER ✓ Operating Cash Flow - Capital Expenditures; cash available to investors.
