MULTIPLE-CHOICE QUESTIONS WITH ANSWERS RELATED TO FINANCE AND FINANCIAL STATEMENT ANALYSIS
1. Which of the following is a primary objective of financial statement analysis?
a) To predict the future performance of the company
b) To record historical financial transactions
c) To ensure compliance with tax regulations
d) To determine the company’s market share
Answer: a) To predict the future performance of the company
2. The balance sheet is also known as the:
a) Statement of profit and loss
b) Statement of financial position
c) Cash flow statement
d) Statement of retained earnings
Answer: b) Statement of financial position
3. In India, which body is primarily responsible for the regulation and oversight of financial markets?
a) Reserve Bank of India (RBI)
b) Securities and Exchange Board of India (SEBI)
c) Ministry of Finance
d) Indian Stock Exchange
Answer: b) Securities and Exchange Board of India (SEBI)
4. Which financial statement provides information about a company’s revenues and expenses over a specific period?
a) Balance sheet
b) Cash flow statement
c) Income statement
d) Statement of changes in equity
Answer: c) Income statement
5. In financial statement analysis, which ratio is used to measure a company’s ability to meet its short-term obligations?
a) Current ratio
b) Debt-to-equity ratio
c) Return on equity
d) Price-to-earnings ratio
Answer: a) Current ratio
6. What does EBITDA stand for?
a) Earnings Before Interest, Taxes, Depreciation, and Amortization
b) Earnings Before Investment, Taxes, Depreciation, and Amortization
c) Earnings Before Interest, Taxes, Dividends, and Amortization
d) Earnings Before Interest, Taxes, Depreciation, and Accruals
Answer: a) Earnings Before Interest, Taxes, Depreciation, and Amortization
7. The Indian Accounting Standards (Ind AS) are based on:
a) Generally Accepted Accounting Principles (GAAP)
b) International Financial Reporting Standards (IFRS)
c) Local business practices
d) Financial Accounting Standards Board (FASB) guidelines
Answer: b) International Financial Reporting Standards (IFRS)
8. Which of the following is not a component of the cash flow statement?
a) Operating activities
b) Investing activities
c) Financing activities
d) Profit after tax
Answer: d) Profit after tax
9. Which of the following ratios is a measure of profitability?
a) Current ratio
b) Quick ratio
c) Gross profit margin
d) Debt ratio
Answer: c) Gross profit margin
10. In the context of Indian financial markets, what does ‘IPO’ stand for?
a) Indian Public Offer
b) Initial Private Offering
c) Initial Public Offer
d) Intermediate Public Offer
Answer: c) Initial Public Offer
11. Which regulatory body in India oversees the functioning of mutual funds?
a) Reserve Bank of India (RBI)
b) Ministry of Finance
c) Securities and Exchange Board of India (SEBI)
d) Insurance Regulatory and Development Authority of India (IRDAI)
Answer: c) Securities and Exchange Board of India (SEBI)
12. The term ‘working capital’ refers to:
a) Long-term financial investments
b) Short-term assets and liabilities
c) Fixed assets of the company
d) Shareholders’ equity
Answer: b) Short-term assets and liabilities
13. In financial statement analysis, what does the term ‘leverage’ refer to?
a) Company’s profitability
b) Company’s liquidity
c) Company’s use of debt to finance its operations
d) Company’s market share
Answer: c) Company’s use of debt to finance its operations
14. What does ‘NPA’ stand for in the Indian banking sector?
a) Non-Performing Asset
b) Non-Profit Account
c) Net Performing Asset
d) Non-Professional Association
Answer: a) Non-Performing Asset
15. Which statement is prepared to show changes in the equity of a company during a specific period?
a) Balance sheet
b) Income statement
c) Statement of cash flows
d) Statement of changes in equity
Answer: d) Statement of changes in equity
Which of the following is a liquidity ratio?
a) Return on Assets
b) Quick Ratio
c) Debt-to-Equity Ratio
d) Price-to-Earnings Ratio
Answer: b) Quick Ratio
17. The Indian GAAP is gradually being replaced by which set of accounting standards?
a) International Accounting Standards (IAS)
b) Indian Accounting Standards (Ind AS)
c) Financial Reporting Standards (FRS)
d) International Financial Reporting Standards (IFRS)
Answer: b) Indian Accounting Standards (Ind AS)
18. The primary purpose of the cash flow statement is to:
a) Measure the profitability of the company
b) Show the financial position at a point in time
c) Provide information about cash receipts and cash payments during a period
d) Show changes in shareholders’ equity
Answer: c) Provide information about cash receipts and cash payments during a period
19. In financial terms, ‘capital structure’ refers to:
a) The mix of a company’s long-term debt and equity financing
b) The organization of the company’s management
c) The allocation of capital to different departments
d) The structure of the company’s capital market investments
Answer: a) The mix of a company’s long-term debt and equity financing
20. Which financial ratio indicates how efficiently a company uses its assets to generate revenue?
a) Current Ratio
b) Return on Assets
c) Debt Ratio
d) Gross Profit Margin
Answer: b) Return on Assets
21. In India, which financial instrument represents ownership in a company and entitles the holder to a share of the company’s profits?
a) Bonds
b) Debentures
c) Equity Shares
d) Preferred Shares
Answer: c) Equity Shares
22. The ‘DuPont Analysis’ is used to:
a) Evaluate a company’s market share
b) Analyze the components of return on equity
c) Assess the company’s liquidity
d) Measure the company’s debt levels
Answer: b) Analyze the components of return on equity
23. What does the term ‘accrual basis of accounting’ mean?
a) Recording revenues when they are received and expenses when they are paid
b) Recording revenues when they are earned and expenses when they are incurred
c) Recording only cash transactions
d) None of the above
Answer: b) Recording revenues when they are earned and expenses when they are incurred
24. In the context of Indian taxation, what does ‘GST’ stand for?
a) General Sales Tax
b) Goods and Services Tax
c) Gross Sales Tax
d) Government Service Tax
Answer: b) Goods and Services Tax
25. Which section of the cash flow statement includes cash flows from the acquisition and disposal of long-term assets?
a) Operating activities
b) Investing activities
c) Financing activities
d) Equity activities
Answer: b) Investing activities
26. The ‘price-to-earnings (P/E) ratio’ is used to assess:
a) A company’s liquidity position
b) The market value relative to earnings
c) The proportion of debt in the capital structure
d) The profitability of the company
Answer: b) The market value relative to earnings
27. Which financial statement shows a company’s performance over a specific period, typically a quarter or year?
a) Balance Sheet
b) Income Statement
c) Statement of Cash Flows
d) Statement of Financial Position
Answer: b) Income Statement
28. In India, which of the following entities is responsible for setting the accounting standards?
a) Reserve Bank of India (RBI)
b) Institute of Chartered Accountants of India (ICAI)
c) Ministry of Finance
d) Securities and Exchange Board of India (SEBI)
Answer: b) Institute of Chartered Accountants of India (ICAI)
29. Which ratio measures the proportion of a company’s total assets financed by its creditors?
a) Equity Ratio
b) Debt Ratio
c) Quick Ratio
d) Current Ratio
Answer: b) Debt Ratio
30. What is the primary purpose of the auditors’ report in financial statements?
a) To prepare financial statements
b) To provide assurance that the financial statements are free from material misstatement
c) To calculate the company’s tax liabilities
d) To manage the company’s internal controls
Answer: b) To provide assurance that the financial statements are free from material misstatement
Which of the following is an example of a non-current asset?
a) Inventory
b) Accounts receivable
c) Property, plant, and equipment
d) Cash and cash equivalents
Answer: c) Property, plant, and equipment
32. The term ‘leverage ratio’ refers to:
a) The proportion of fixed costs in a company’s cost structure
b) The degree to which a company uses borrowed funds
c) The rate at which a company’s assets are turned over
d) The return on a company’s equity
Answer: b) The degree to which a company uses borrowed funds
33. In India, dividends received from equity shares are generally:
a) Tax-exempt
b) Subject to dividend distribution tax
c) Subject to capital gains tax
d) Subject to income tax
Answer: d) Subject to income tax
34. Which of the following is considered a financing activity in the cash flow statement?
a) Purchase of inventory
b) Payment of dividends
c) Acquisition of fixed assets
d) Payment of wages
Answer: b) Payment of dividends
35. The ‘acid-test ratio’ is also known as the:
a) Current ratio
b) Quick ratio
c) Debt-to-equity ratio
d) Gross profit margin
Answer: b) Quick ratio
36. What is the primary goal of financial management?
a) Maximizing the market value of equity shares
b) Minimizing the company’s tax liabilities
c) Ensuring compliance with accounting standards
d) Providing accurate financial reports
Answer: a) Maximizing the market value of equity shares
37. In financial analysis, what does the term ‘solvency’ refer to?
a) The ability to meet short-term obligations
b) The ability to meet long-term obligations
c) The profitability of a company
d) The efficiency in asset utilization
Answer: b) The ability to meet long-term obligations
38. Which of the following is NOT a profitability ratio?
a) Net profit margin
b) Return on assets
c) Return on equity
d) Debt ratio
Answer: d) Debt ratio
39. The ‘debt-to-equity ratio’ measures:
a) The liquidity position of a company
b) The profitability of a company
c) The proportion of debt used in the capital structure
d) The efficiency of asset utilization
Answer: c) The proportion of debt used in the capital structure
40. Which of the following is a characteristic of preferred shares?
a) Voting rights
b) Higher claim on assets than common shares
c) Guaranteed capital appreciation
d) Higher risk compared to common shares
Answer: b) Higher claim on assets than common shares
41. In India, which financial instrument is used by companies to borrow money from the public for a fixed term?
a) Equity shares
b) Bonds
c) Commercial papers
d) Mutual funds
Answer: b) Bonds
42. What does the term ‘working capital cycle’ refer to?
a) The time taken to convert net working capital into cash
b) The duration of the production process
c) The period for which long-term funds are invested
d) The time required to recover investments
Answer: a) The time taken to convert net working capital into cash
43. Which of the following financial statements would you refer to in order to assess a company’s liquidity?
a) Balance sheet
b) Income statement
c) Statement of cash flows
d) Statement of changes in equity
Answer: a) Balance sheet
44. In financial reporting, what does the term ‘going concern’ imply?
a) A company is expected to continue operations for the foreseeable future
b) A company is likely to be sold or liquidated
c) A company is facing financial difficulties
d) A company has a high turnover of employees
Answer: a) A company is expected to continue operations for the foreseeable future
45. The Indian Companies Act, 2013 mandates which of the following for all listed companies?
a) Quarterly financial reporting
b) Yearly financial reporting
c) Monthly financial reporting
d) Bi-annual financial reporting
Answer: a) Quarterly financial reporting
46. In financial statement analysis, which ratio would best indicate the efficiency of a company’s inventory management?
a) Inventory turnover ratio
b) Current ratio
c) Return on equity
d) Debt ratio
Answer: a) Inventory turnover ratio
47. What is the main purpose of conducting a financial audit?
a) To provide an opinion on the fairness and accuracy of financial statements
b) To detect fraud within the company
c) To assess the market position of the company
d) To manage the company’s financial resources
Answer: a) To provide an opinion on the fairness and accuracy of financial statements
48. In India, the concept of ‘Corporate Social Responsibility’ (CSR) is mandated under which section of the Companies Act, 2013?
a) Section 132
b) Section 135
c) Section 138
d) Section 140
Answer: b) Section 135
49. Which financial statement would you use to analyze a company’s operational efficiency over a period?
a) Balance sheet
b) Income statement
c) Statement of cash flows
d) Statement of changes in equity
Answer: b) Income statement
50. The ratio that compares net income to shareholders’ equity is known as:
a) Return on assets
b) Return on equity
c) Current ratio
d) Debt-to-equity ratio
Answer: b) Return on equity
51. In India, the system of electronic fund transfer between banks is known as:
a) NEFT
b) SWIFT
c) RTGS
d) IFSC
Answer: a) NEFT
52. The ‘Current Ratio’ is calculated as:
a) Current assets / Current liabilities
b) Total assets / Total liabilities
c) Net income / Total assets
d) Gross profit / Net sales
Answer: a) Current assets / Current liabilities
53. In India, what is the minimum percentage of net profits that companies with a certain turnover must spend on CSR activities, as per the Companies Act, 2013?
a) 1%
b) 2%
c) 3%
d) 4%
Answer: b) 2%
54. Which of the following is NOT typically considered a part of a company’s working capital?
a) Cash
b) Inventory
c) Plant and equipment
d) Accounts receivable
Answer: c) Plant and equipment
55. The ‘price-to-book (P/B) ratio’ is used to compare a company’s market value to:
a) Its net income
b) Its book value
c) Its cash flow
d) Its revenue
Answer: b) Its book value
56. In India, which entity is primarily responsible for credit rating of companies?
a) SEBI
b) RBI
c) CRISIL
d) MCA
Answer: c) CRISIL
57. The ‘Earnings Per Share (EPS)’ ratio is calculated as:
a) Net income / Total assets
b) Net income / Number of shares outstanding
c) Gross profit / Net sales
d) Net income / Shareholders’ equity
Answer: b) Net income / Number of shares outstanding
58. Which type of audit is focused on ensuring that financial statements are accurate and compliant with accounting standards?
a) Internal audit
b) Compliance audit
c) Financial audit
d) Operational audit
Answer: c) Financial audit
59. In the context of financial markets, what does ‘NAV’ stand for?
a) Net Asset Value
b) Net Annual Value
c) Nominal Asset Value
d) National Annual Value
Answer: a) Net Asset Value
60. In India, the ‘Budget’ is presented by which ministry?
a) Ministry of Commerce
b) Ministry of Finance
c) Ministry of Corporate Affairs
d) Ministry of Planning
Answer: b) Ministry of Finance
