ACCT 202 Financial Statement Analysis &
Ratios Exam Prep 2026 | Complete Study
Guide, Practice Questions with Verified
Answers & Detailed Solutions
ACCT 202 FINANCIAL STATEMENT ANALYSIS & RATIOS EXAM PREP 2026 |
COMPLETE STUDY GUIDE
DOCUMENT OVERVIEW
• This comprehensive study guide contains 200 multiple-choice practice questions
designed to test your mastery of financial statement analysis, ratio calculations, and
interpretation across all major ratio categories.
• Study strategy: Work through these questions systematically, use the detailed
rationales to understand not just the correct answer but the "why" behind each
concept, and focus on questions you miss to identify knowledge gaps.
QUESTION 1
A company has current assets of $500,000 and current liabilities of $250,000.
What is the current ratio?
A) 0.50
B) 1.00
C) 2.00
D) 3.00
E) 4.00
CORRECT ANSWER: C) 2.00
RATIONALE: The current ratio is calculated by dividing current assets by current
liabilities: $500,000 ÷ $250,000 = 2.00. This indicates that the company has $2.00 in
current assets for every $1.00 of current liabilities, suggesting adequate short-term
liquidity to meet obligations.
,QUESTION 2
Which of the following is NOT included in the numerator of the quick ratio?
A) Cash
B) Marketable securities
C) Accounts receivable
D) Inventory
E) Short-term investments
CORRECT ANSWER: D) Inventory
RATIONALE: The quick ratio (acid-test ratio) includes only the most liquid assets:
cash, marketable securities, and accounts receivable. Inventory is excluded because
it is less liquid and may take time to convert to cash. The formula is (Current Assets
- Inventory) / Current Liabilities.
QUESTION 3
A firm has cash of $100,000, accounts receivable of $150,000, and current
liabilities of $200,000. What is the cash ratio?
A) 0.25
B) 0.50
C) 0.75
D) 1.00
E) 1.25
CORRECT ANSWER: A) 0.25
RATIONALE: The cash ratio is calculated as Cash / Current Liabilities = $100,000 /
$200,000 = 0.25. This is the most conservative liquidity measure and shows the
percentage of current liabilities that can be paid with cash and cash equivalents
immediately.
,QUESTION 4
Which ratio measures how efficiently a company converts sales into net
income?
A) Current ratio
B) Net profit margin
C) Asset turnover ratio
D) Return on equity
E) Debt-to-equity ratio
CORRECT ANSWER: B) Net profit margin
RATIONALE: The net profit margin is calculated as Net Income / Sales and
measures the percentage of each sales dollar that becomes profit. It directly shows
how efficiently the company converts revenue into earnings, reflecting overall
profitability relative to sales.
QUESTION 5
If a company has net income of $80,000 and sales of $1,000,000, what is the
net profit margin?
A) 4%
B) 6%
C) 8%
D) 10%
E) 12%
CORRECT ANSWER: C) 8%
, RATIONALE: Net profit margin = (Net Income / Sales) × 100 = ($80,000 / $1,000,000)
× 100 = 8%. This means the company retains 8 cents of profit for every dollar of
sales generated, indicating reasonable profitability.
QUESTION 6
Return on Assets (ROA) primarily measures:
A) How much profit is generated per dollar of equity
B) How efficiently assets generate profit
C) The percentage of debt used to finance assets
D) The liquidity position of the company
E) The growth rate of the company
CORRECT ANSWER: B) How efficiently assets generate profit
RATIONALE: ROA is calculated as Net Income / Total Assets and measures how
effectively the company uses its asset base to generate earnings. It shows the
return earned on every dollar of assets employed in the business.
QUESTION 7
A company has net income of $150,000 and average total assets of $1,500,000.
What is the ROA?
A) 5%
B) 10%
C) 15%
D) 20%
E) 25%
CORRECT ANSWER: B) 10%
Ratios Exam Prep 2026 | Complete Study
Guide, Practice Questions with Verified
Answers & Detailed Solutions
ACCT 202 FINANCIAL STATEMENT ANALYSIS & RATIOS EXAM PREP 2026 |
COMPLETE STUDY GUIDE
DOCUMENT OVERVIEW
• This comprehensive study guide contains 200 multiple-choice practice questions
designed to test your mastery of financial statement analysis, ratio calculations, and
interpretation across all major ratio categories.
• Study strategy: Work through these questions systematically, use the detailed
rationales to understand not just the correct answer but the "why" behind each
concept, and focus on questions you miss to identify knowledge gaps.
QUESTION 1
A company has current assets of $500,000 and current liabilities of $250,000.
What is the current ratio?
A) 0.50
B) 1.00
C) 2.00
D) 3.00
E) 4.00
CORRECT ANSWER: C) 2.00
RATIONALE: The current ratio is calculated by dividing current assets by current
liabilities: $500,000 ÷ $250,000 = 2.00. This indicates that the company has $2.00 in
current assets for every $1.00 of current liabilities, suggesting adequate short-term
liquidity to meet obligations.
,QUESTION 2
Which of the following is NOT included in the numerator of the quick ratio?
A) Cash
B) Marketable securities
C) Accounts receivable
D) Inventory
E) Short-term investments
CORRECT ANSWER: D) Inventory
RATIONALE: The quick ratio (acid-test ratio) includes only the most liquid assets:
cash, marketable securities, and accounts receivable. Inventory is excluded because
it is less liquid and may take time to convert to cash. The formula is (Current Assets
- Inventory) / Current Liabilities.
QUESTION 3
A firm has cash of $100,000, accounts receivable of $150,000, and current
liabilities of $200,000. What is the cash ratio?
A) 0.25
B) 0.50
C) 0.75
D) 1.00
E) 1.25
CORRECT ANSWER: A) 0.25
RATIONALE: The cash ratio is calculated as Cash / Current Liabilities = $100,000 /
$200,000 = 0.25. This is the most conservative liquidity measure and shows the
percentage of current liabilities that can be paid with cash and cash equivalents
immediately.
,QUESTION 4
Which ratio measures how efficiently a company converts sales into net
income?
A) Current ratio
B) Net profit margin
C) Asset turnover ratio
D) Return on equity
E) Debt-to-equity ratio
CORRECT ANSWER: B) Net profit margin
RATIONALE: The net profit margin is calculated as Net Income / Sales and
measures the percentage of each sales dollar that becomes profit. It directly shows
how efficiently the company converts revenue into earnings, reflecting overall
profitability relative to sales.
QUESTION 5
If a company has net income of $80,000 and sales of $1,000,000, what is the
net profit margin?
A) 4%
B) 6%
C) 8%
D) 10%
E) 12%
CORRECT ANSWER: C) 8%
, RATIONALE: Net profit margin = (Net Income / Sales) × 100 = ($80,000 / $1,000,000)
× 100 = 8%. This means the company retains 8 cents of profit for every dollar of
sales generated, indicating reasonable profitability.
QUESTION 6
Return on Assets (ROA) primarily measures:
A) How much profit is generated per dollar of equity
B) How efficiently assets generate profit
C) The percentage of debt used to finance assets
D) The liquidity position of the company
E) The growth rate of the company
CORRECT ANSWER: B) How efficiently assets generate profit
RATIONALE: ROA is calculated as Net Income / Total Assets and measures how
effectively the company uses its asset base to generate earnings. It shows the
return earned on every dollar of assets employed in the business.
QUESTION 7
A company has net income of $150,000 and average total assets of $1,500,000.
What is the ROA?
A) 5%
B) 10%
C) 15%
D) 20%
E) 25%
CORRECT ANSWER: B) 10%
