Balance Sheet Basics

What is the primary purpose of a balance sheet?

• To assess the financial position or health

• To record daily transactions

• To forecast future profits

• To calculate tax liabilities

Why might someone compare several years' balance sheets?

• To measure changes in net worth

• To determine annual revenue

• To calculate monthly expenses

• To assess employee performance

What are current assets?

• Assets that can be sold without affecting long-term profit-generation capacity

• Assets that are used for more than one year

• Assets that are not liquid

• Assets that are intangible

Why are noncurrent assets difficult to sell quickly?

• They are not valuable

• They are intangible

• They require a long-term commitment

• They cannot realize full market value quickly

Which of the following is a source of owner's equity?

• Contributed capital

• Interest payments

• Loan repayments

• Depreciation

What does liquidity measure in a business?

• The ability to pay off all financial obligations

• The extent to which the business has cash to meet immediate, short-term obligations

• The profitability of the business

• The growth rate of the business

What does solvency measure in a business?

• The ability to expand operations

• The extent to which the business has cash to meet immediate, short-term obligations

• The business's ability to pay off all financial obligations

• The efficiency of the business processes

What is leverage in financial terms?

• Percentage of assets financed by creditors

• Total assets owned by a company

• Amount of cash reserves

• Number of employees in a company

How is leverage measured?

• Profit-to-loss ratio

• Debt-to-equity (D/E) ratio

• Asset-to-liability ratio

• Revenue-to-expense ratio

What must financed assets generate to be beneficial?

• More revenue than the loan’s interest rate

• Equal revenue to the loan’s interest rate

• Less revenue than the loan’s interest rate

• No revenue