MOCK TEST_MODULE 3
d) The company has low liquidity
1. What is the primary purpose of financial
analysis?
a) To evaluate a company’s marketing strategies
b) To assess a company’s financial health and
performance
c) To determine a company’s production
efficiency
d) To analyze a company’s human resources
management
2. Which financial statement shows a company’s
revenues and expenses over a specific period?
a) Balance Sheet
b) Income Statement
c) Cash Flow Statement
d) Statement of Retained Earnings
3. What is the main purpose of ratio analysis in
financial analysis?
a) To evaluate a company’s revenue growth
b) To assess a company’s profitability and
efficiency
c) To determine a company’s market share
d) To analyze a company’s employee turnover
rate
3. Which financial ratio measures a company’s
ability to meet its short-term obligations?
a) Debt-to-Equity Ratio
b) Return on Equity (ROE)
c) Current Ratio
d) Gross Profit Margin
4. What does the Debt-to-Equity Ratio indicate
about a company?
a) Its ability to generate profits
b) Its financial leverage and risk
c) Its operating efficiency
d) Its liquidity position
5. Which financial ratio measures a company’s
profitability in relation to its total assets?
a) Return on Assets (ROA)
b) Gross Profit Margin
c) Return on Equity (ROE)
d) Current Ratio
6. What does a positive net profit margin indicate
about a company?
a) The company is operating at a loss
b) The company’s sales revenue exceeds its
expenses
c) The company is highly leveraged
7. What does a positive net profit margin indicate
about a company?
a) The company is operating at a loss
b) The company’s sales revenue exceeds its
expenses
c) The company is highly leveraged
d) The company has low liquidity
8. Which financial analysis method compares
financial data over different periods to identify
trends or changes?
a) Vertical Analysis
b) DuPont Analysis
c) Horizontal Analysis
d) Ratio Analysis
9. Which financial statement shows a company’s
assets, liabilities, and shareholders’ equity at a
specific point in time?
a) Income Statement
b) Cash Flow Statement
c) Balance Sheet
d) Statement of Retained Earnings
10. What does the quick ratio measure in
financial analysis?
a) A company’s ability to generate profits
b) A company’s ability to meet its long-term
obligations
c) A company’s ability to meet its short-term
obligations with its most liquid assets
d) A company’s return on shareholders’ equity
11. Which financial ratio measures a company’s
efficiency in managing its inventory?
a) Debt-to-Equity Ratio
b) Inventory Turnover Ratio
c) Gross Profit Margin
d) Return on Equity (ROE)
12. What is the purpose of DuPont Analysis in
financial analysis?
a) To assess a company’s liquidity
b) To break down return on equity (ROE) into its
key components
c) To determine a company’s market share
d) To calculate a company’s debt-to-equity ratio
13. Which financial ratio measures a company’s
ability to generate profits from its operations
before interest and taxes?
a) Return on Assets (ROA)
b) Gross Profit Margin
c) Return on Sales (ROS)
d) Earnings Before Interest and Taxes (EBIT)
Margin
14. What does the Price/Earnings (P/E) ratio
represent in financial analysis?
a) A company’s debt level compared to its equity
b) The relationship between a company’s stock
price and its earnings per share
c) The percentage of earnings paid out as
dividends to shareholders
d) A company’s ability to generate profits from
its total assets
15. Which financial statement shows the inflow
and outflow of cash in a company over a specific
period?
a) Income Statement
b) Cash Flow Statement
c) Balance Sheet
d) Statement of Retained Earnings
16. What is the purpose of sensitivity analysis in
financial analysis?
a) To assess a company’s profitability
b) To calculate a company’s net profit margin
c) To determine a company’s market share
d) To analyze the impact of changing variables
on financial outcomes
17. Which financial ratio measures a company’s
efficiency in collecting its accounts receivable?
a) Return on Assets (ROA)
b) Debt-to-Equity Ratio
c) Receivables Turnover Ratio
d) Gross Profit Margin
18. What is the purpose of vertical analysis in
financial analysis?
a) To compare financial data over different
periods
b) To calculate financial ratios
c) To express financial statement items as a
percentage of a common base
d) To break down return on equity (ROE) into its
key components
19. Which financial ratio measures a company’s
ability to generate profits from its equity capital?
a) Return on Assets (ROA)
b) Debt-to-Equity Ratio
c) Return on Equity (ROE)
d) Current Ratio
20. What does a high debt-to-equity ratio indicate
about a company’s financial position?
a) The company has low financial leverage
b) The company has a low level of debt
compared to its equity
c) The company is highly leveraged and may
carry a higher financial risk
d) The company’s profitability is high
21. Which financial ratio measures a company’s
profitability from its core operations before
interest, taxes, and preferred stock dividends?
a) Return on Assets (ROA)
b) Earnings Before Interest, Taxes, Depreciation,
and Amortization (EBITDA) Margin
c) Return on Sales (ROS)
d) Gross Profit Margin
22. What is the primary purpose of cash flow
analysis in financial analysis?
a) To calculate a company’s return on assets
b) To evaluate a company’s ability to meet its
short-term obligations
c) To assess a company’s profitability
d) To determine a company’s market share
23. Which financial ratio measures the
percentage of each sales dollar that represents
gross profit?
a) Debt-to-Equity Ratio
b) Gross Profit Margin
c) Current Ratio
d) Inventory Turnover Ratio
24. What is the purpose of comparative analysis
in financial analysis?
a) To express financial statement items as a
percentage of a common base
b) To assess a company’s liquidity
c) To compare a company’s financial
performance with competitors or industry
benchmarks
d) To calculate a company’s return on equity
(ROE)
25. Which financial ratio measures a company’s
ability to meet its long-term obligations?
a) Debt-to-Equity Ratio
b) Current Ratio
c) Return on Equity (ROE)
d) Return on Assets (ROA)
26. What is the purpose of profitability ratios in
financial analysis?
a) To assess a company’s ability to generate
profits from its operations
b) To evaluate a company’s liquidity
c) To calculate a company’s return on assets
d) To compare financial data over different
periods

27. Which financial ratio measures the

percentage of each sales dollar that represents net
income?
a) Debt-to-Equity Ratio
b) Return on Assets (ROA)
c) Net Profit Margin
d) Receivables Turnover Ratio

28. What is the purpose of financial forecasting

in financial analysis?
a) To compare a company’s financial
performance with competitors or industry
benchmarks
b) To evaluate a company’s liquidity
c) To project future financial performance based
on historical data and market trends
d) To assess a company’s ability to meet its
short-term obligations

29. Which financial ratio measures a company’s

ability to generate profits from its total assets?
a) Return on Equity (ROE)
b) Debt-to-Equity Ratio
c) Return on Assets (ROA)
d) Current Ratio

30. What does the Debt-to-Asset ratio indicate

about a company?
a) Its ability to generate profits from its total
assets
b) Its financial leverage and risk
c) Its liquidity position
d) Its ability to meet short-term obligations