Some examples from this set of practice questions
1.
What are financial statements, and why are they important in business?
Answer: Financial statements are reports that summarize a company\'s financial performance and position. They include the income statement, balance sheet, and cash flow statement. They are crucial because they provide stakeholders with insights into a company\'s financial health and performance.
2.
What is the main purpose of an income statement, and what key information does it provide?
Answer: The main purpose of an income statement is to show a company\'s profitability over a specific period. It provides information on revenues, expenses, gross profit, operating income, and net income.
3.
Explain the purpose of a balance sheet and its key components.
Answer: A balance sheet offers a snapshot of a company\'s financial position at a particular moment. Its key components include assets (current and non-current), liabilities (current and non-current), and shareholders\' equity.
4.
What is the significance of a cash flow statement, and what are its main sections?
Answer: A cash flow statement tracks cash inflows and outflows by categorizing them as operating, investing, and financing activities. Its main sections are operating cash flow, investing cash flow, financing cash flow, and net change in cash.
5.
Name three common financial ratios used to assess a company\'s performance.
Answer: Three common financial ratios are: 1. Debt-to-equity ratio 2. Current ratio 3. Return on equity (ROE)
6.
What is working capital, and why is it important for a business?
Answer: Working capital is the difference between a company\'s current assets and current liabilities. It\'s important because it represents a company\'s short-term liquidity and its ability to cover day-to-day operational expenses.
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