Chapter 2
Analyzing Financial Statements
and Ratios
Quiz Questions
Multiple Choice
1. Which of the following is a picture or snapshot of the financial condition of an
organization at a specific point in time?
a. Balance sheet
b. Income statement
c. Statement of cash flows
d. Budget
e. None of the above
2. Which ratio measures how an organization finances its operation with debt and equity?
a. Current ratio
b. Quick ratio
c. Total asset turnover ratio
d. Inventory turnover ratio
e. Debt ratio
3. Which ratio measures how often an organization sells and replaces its inventory over a
specified period of time?
a. Current ratio
b. Quick ratio
c. Total asset turnover ratio
d. Inventory turnover ratio
e. Debt ratio
4. Which of the following is an estimate of how much money investors will pay for each
dollar of the organization’s earnings?
a. Interest coverage ratio
b. Net profit margin
c. Return on equity
d. Market value
e. Price-to-earnings ratio
5. Which financial statement tracks cash in and cash out of an organization over a specified
period of time?
a. Balance sheet
b. Income statement
c. Statement of cash flows
d. Budget
e. None of the above
6. Which of the following measures the return rate an organization’s owners or
shareholders are receiving on their investments?
a. Interest coverage ratio
b. Net profit margin
c. Return on equity
d. Market value
e. Price-to-earnings ratio
7. The __________ shows the organization’s income over a specified period of time.
a. Balance sheet
b. Income statement
c. Statement of cash flows
d. Budget
e. None of the above
8. An estimation of an organization’s worth according to the stock market is __________.
a. Interest coverage ratio
b. Net profit margin
c. Return on equity
d. Market value
e. Price-to-earnings ratio
9. Which of the following is a profitability ratio that measures the percentage of an
organization’s total sales or revenues that was net profit or income?
a. Interest coverage ratio
b. Net profit margin
c. Return on equity
d. Market value
e. Price-to-earnings ratio
10. Which ratio is an indication of whether an organization can meet its current
liabilities―those due within a year―with its current assets?
a. Current ratio
b. Quick ratio
c. Total asset turnover ratio
d. Inventory turnover ratio
e. Debt ratio
1. T or F Most business organizations, including those in the sport industry, do not use
double-entry bookkeeping.
2. T or F When using the ledger of T-accounts, credits are entered on the right-hand
side and debits are entered on the left-hand side.
3. T or F The balance sheet represents what the organization’s financial performance is
over a period of time.
4. T or F A common example of a long-term liability is renovation.
5. T or F There is no lag time between when a transaction is made and when payment
is exchanged in accrual basis accounting.
6. T or F The balance sheet provides information as to whether the company has
sufficient cash on hand to meet its debts and obligations.
7. T or F Current ratio values can be used as a comparative tool.
8. T or F Two of the most common activity ratios are the total asset turnover ratio and
the inventory turnover ratio.
9. T or F Total assets is used as the denominator in the calculation of return on assets.
10. T or F How a company chooses to finance its operation with debt versus existing
loans is known as leverage.
Answers to Quiz Questions
Multiple Choice
True/False