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web.groovymark@gmail.com
- December 25, 2024
Question 41
What is the difference between common stock and bonds?
a) Common stock represents ownership, while bonds represent debt
b) Bonds pay dividends, while common stock does not
c) Common stock has a fixed return, while bonds do not
d) Bonds can be converted into common stock at any time
Answer: a) Common stock represents ownership, while bonds represent debt
Explanation: Common stockholders own a portion of the company, while bondholders lend money to the company.
Question 42
A company’s total debt is $500,000, and its total equity is $300,000. What is its debt-to-equity ratio?
a) 0.6
b) 1.67
c) 1.2
d) 2.5
Answer: b) 1.67
Explanation: Debt-to-equity ratio = Total debt / Total equity. In this case: $500,000 / $300,000 = 1.67.
Question 43
What does the term “liquidity” refer to in financial markets?
a) The ability to quickly convert assets into cash without losing value
b) The volatility of stock prices
c) The interest rate on short-term loans
d) The creditworthiness of borrowers
Answer: a) The ability to quickly convert assets into cash without losing value
Explanation: Liquidity refers to how easily an asset can be converted into cash without a significant loss in value.
Question 44
What is the significance of a company’s gross profit?
a) It indicates the total revenue generated
b) It shows the amount of profit after accounting for the cost of goods sold
c) It represents the total profit after all expenses are deducted
d) It measures the company’s operating expenses
Answer: b) It shows the amount of profit after accounting for the cost of goods sold
Explanation: Gross profit is calculated by subtracting the cost of goods sold from total revenue, reflecting the company’s profit before other expenses.
Question 45
A company’s dividend payout ratio is 40%, and its earnings per share (EPS) is $2.00. What is the company’s dividend per share?
a) $0.80
b) $1.00
c) $1.20
d) $2.00
Answer: a) $0.80
Explanation: Dividend per share = Dividend payout ratio × EPS. In this case: 0.40 × $2.00 = $0.80.
Question 46
Which financial metric is commonly used to assess a company’s profitability?
a) Quick ratio
b) Return on equity (ROE)
c) Current ratio
d) Debt-to-equity ratio
Answer: b) Return on equity (ROE)
Explanation: ROE measures a company’s profitability by comparing net income to shareholders' equity.
Question 47
What does a company’s income statement report?
a) The company’s financial position at a specific point in time
b) The company’s revenue, expenses, and net income over a period of time
c) The company’s assets and liabilities
d) The company’s cash flow activities
Answer: b) The company's revenue, expenses, and net income over a period of time
Explanation: The income statement shows a company’s financial performance, including revenue, expenses, and net income, over a specific period.
Question 48
What is the primary purpose of the cash flow statement?
a) To show the company’s profitability
b) To track the company’s cash inflows and outflows
c) To provide a snapshot of the company’s financial position
d) To measure the company’s revenue growth
Answer: b) To track the company's cash inflows and outflows
Explanation: The cash flow statement reports a company’s cash inflows and outflows, helping assess liquidity and cash management.
Question 49
A company’s operating margin is 15%. What does this indicate?
a) The company retains 15% of its revenue after operating expenses
b) The company has a net profit margin of 15%
c) The company pays 15% of its revenue in dividends
d) The company’s cost of goods sold is 15% of its revenue
Answer: a) The company retains 15% of its revenue after operating expenses
Explanation: Operating margin shows the percentage of revenue left after covering operating expenses.
Question 50
What is the purpose of beta in investment analysis?
a) To measure the risk of a stock relative to the market
b) To calculate the total return on an investment
c) To determine the liquidity of a stock
d) To assess the profitability of a company
Answer: a) To measure the risk of a stock relative to the market
Explanation: Beta measures a stock’s volatility compared to the overall market, with a beta greater than 1 indicating higher risk.
