D365 Financial Management II - Set 3 - Part 1

Test your knowledge of technical writing concepts with these practice questions. Each question includes detailed explanations to help you understand the correct answers.

Question 1: What is a key benefit of using financial ratios in business analysis?

They eliminate all risks in investment

They provide a standard method for comparing companies

They guarantee higher profits

They replace the need for financial statements

Question 2: What does a debt-to-equity ratio of 0.5 indicate?

The company has more debt than equity

The company has more equity than debt

The company has equal amounts of debt and equity

The company is using no equity financing

Question 3: Which of the following represents a liquidity ratio?

Return on assets

Price-to-earnings ratio

Current ratio

Gross margin

Question 4: What is the main difference between preferred stock and common stock?

Preferred stockholders receive voting rights, while common stockholders do not

Preferred stockholders have priority over common stockholders in dividend payments

Common stockholders are guaranteed dividends, but preferred stockholders are not

Common stockholders have priority over preferred stockholders in bankruptcy

Question 5: Which financial statement reports a company’s assets, liabilities, and equity at a specific point in time?

Income statement

Balance sheet

Cash flow statement

Statement of retained earnings

Question 6: A company has current assets of $500,000 and current liabilities of $250,000. What is its current ratio?

0.5

1.0

2.0

3.0

Question 7: What is meant by the term “leverage” in finance?

The use of retained earnings to finance new projects

The use of debt to increase the potential return on equity

The use of cash flow to buy back shares

The use of equity financing to reduce debt

Question 8: What does a high inventory turnover ratio indicate about a company?

The company is struggling to sell its products

The company has slow-moving inventory

The company is efficiently selling and restocking inventory

The company’s sales are declining

Question 9: What is the primary function of a capital market?

To provide short-term loans to companies

To facilitate the trading of long-term financial securities

To increase government regulation

To provide insurance for investors

Question 10: A company’s earnings before interest and taxes (EBIT) is $200,000, and its interest expense is $50,000. What is its interest coverage ratio?

Question 11: What is the main purpose of diversification in an investment portfolio?

To increase the overall risk of the portfolio

To concentrate investments in one industry

To reduce risk by investing in different assets

To guarantee high returns

Question 12: A company with a return on equity (ROE) of 20% is considered:

To have low profitability

To be effectively using shareholders' equity to generate profits

To be inefficient at generating returns

To have high debt levels

Question 13: What is a “bull market”?

A market characterized by falling stock prices

A market where short-selling is common

A market characterized by rising stock prices

A market where stocks are undervalued

Question 14: Which of the following best describes “working capital”?

Total assets minus total liabilities

Current assets minus current liabilities

Total revenue minus total expenses

Long-term assets minus long-term debt

Question 15: A company issues bonds with a face value of $1,000 each and a coupon rate of 5%. What is the annual interest payment per bond?

$50

$100

$500

Question 16: What does a price-to-earnings (P/E) ratio of 25 suggest?

Investors are paying $25 for every $1 of earnings

The company has high debt

The company’s stock is overvalued

The company’s stock is undervalued

Question 17: What is the role of a financial intermediary in the economy?

To create new currencies

To connect borrowers and savers

To determine interest rates

To enforce financial regulations

Question 18: What is the purpose of a company’s retained earnings?

To pay dividends to shareholders

To reinvest profits back into the business

To increase the company’s liabilities

To reduce the company’s taxes

Question 19: A company’s return on assets (ROA) is 8%, and its total assets are $1,000,000. What is its net income?

$40,000

$80,000

$100,000

$120,000

Question 20: Which type of risk can be reduced through diversification?

Systematic risk

Market risk

Unsystematic risk

Interest rate risk

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