15 Multiple Choice Questions about Financial Analysis
(Balance Sheet – Income Statement – Cash Flow Statement)
1. What is the main purpose of balance sheet analysis?
A. Calculation of VAT
B. Evaluation of the company’s financial position
C. Control of sales
D. Preparation of the budget
2. What does total assets represent on the balance sheet?
A. The company’s profits
B. The company’s liabilities
C. The resources owned by the company
D. Cash flows
3. Which of the following belongs to current assets?
A. Buildings
B. Machinery
C. Inventory
D. Long-term loans
4. What does the current ratio measure?
A. Profitability of the company
B. Ability to cover short-term liabilities
C. Speed of receivables collection
D. Relationship between equity and liabilities
5. What does the liabilities side of the balance sheet include?
A. Revenues and expenses
B. Assets
C. Liabilities and equity
D. Cash flows
6. Which ratio is used to evaluate capital structure?
A. Liquidity ratio
B. Profitability ratio
C. Leverage ratio
D. Inventory turnover ratio
7. What is the purpose of the income statement?
A. To show liquidity
B. To present profit or loss
C. To analyze fixed assets
D. To calculate cash flows
8. Which item does NOT appear on the income statement?
A. Sales
B. Cost of goods sold
C. Ending inventory
D. Net profit
9. What does gross profit represent?
A. Sales minus administrative expenses
B. Sales minus cost of goods sold
C. Net income after taxes
D. Operating profit
10. Which ratio is used to measure profitability?
A. Current ratio
B. Debt-to-equity ratio
C. Net profit margin
D. Inventory turnover ratio
11. What is the purpose of the cash flow statement?
A. To present accounting profit
B. To show cash inflows and outflows
C. To analyze fixed assets
D. To calculate liquidity ratios
12. Which activity is NOT included in the cash flow statement?
A. Operating activities
B. Investing activities
C. Financing activities
D. Accounting depreciation entries
13. How are depreciation expenses treated in cash flow analysis?
A. As a cash outflow
B. As a cash inflow
C. They do not affect cash flows
D. As a financing activity
14. What does cash flow analysis show in relation to profits?
A. That profits are always cash
B. The difference between accounting profit and liquidity
C. That losses do not affect cash
D. The tax burden
15. Which financial statement is considered the most reliable for liquidity analysis?
A. Balance sheet
B. Income statement
C. Cash flow statement
D. Notes to the financial statements
✅ Answers & Explanations
1. B – The balance sheet shows the overall financial position of a company at a specific point in time.
2. C – Assets represent the economic resources owned and controlled by the company.
3. C – Inventory is a current asset because it is expected to be converted into cash within a short period.
4. B – The current ratio measures the company’s ability to meet short-term obligations.
5. C – The liabilities side includes both obligations to third parties and shareholders’ equity.
6. C – The leverage ratio evaluates the relationship between borrowed funds and equity.
7. B – The income statement presents the financial performance (profit or loss) of the period.
8. C – Ending inventory appears on the balance sheet, not directly on the income statement.
9. B – Gross profit equals sales minus cost of goods sold.
10. C – Net profit margin is a key indicator of profitability.
11. B – The cash flow statement shows actual cash inflows and outflows.
12. D – Depreciation is a non-cash accounting entry, not a cash flow activity.
13. C – Depreciation does not involve cash movement and therefore does not affect cash flows directly.
14. B – Cash flow analysis highlights differences between accounting profit and actual liquidity.
15. C – The cash flow statement provides the most accurate picture of liquidity.
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