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Questions and Answers
What does the current ratio measure?
What does the current ratio measure?
Which financial statement is used to assess a company's financial health?
Which financial statement is used to assess a company's financial health?
What does the debt-to-equity ratio indicate?
What does the debt-to-equity ratio indicate?
What is the calculation for return on assets (ROA)?
What is the calculation for return on assets (ROA)?
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Which of the following markets allows for the issuance of new securities?
Which of the following markets allows for the issuance of new securities?
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What does equity represent in a company?
What does equity represent in a company?
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Which financial statement provides a snapshot of a company's assets, liabilities, and equity?
Which financial statement provides a snapshot of a company's assets, liabilities, and equity?
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What is calculated by subtracting total expenses from total revenue?
What is calculated by subtracting total expenses from total revenue?
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Which of the following is classified as an expense?
Which of the following is classified as an expense?
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What type of account represents amounts owed to a company by its customers?
What type of account represents amounts owed to a company by its customers?
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What is considered an operating expense?
What is considered an operating expense?
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Which financial statement tracks the movement of cash in and out of a company?
Which financial statement tracks the movement of cash in and out of a company?
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What signifies a positive difference between revenue and expenses?
What signifies a positive difference between revenue and expenses?
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Study Notes
Financial Terminology
- Asset: A resource with economic value owned by an individual or company, expected to yield future economic benefit. Examples: cash, accounts receivable, inventory, property.
- Liability: An obligation of an entity to transfer economic resources or provide services in the future, resulting from past transactions or events. Examples: accounts payable, loans, salaries payable.
- Equity: The residual interest in a company's assets after deducting liabilities. Represents ownership stake.
- Revenue: Income from selling goods or services. Top line of an income statement.
- Expense: Costs incurred in generating revenue. Examples: salaries, rent, utilities.
- Profit/Loss: Difference between revenue and expenses. Positive = profit, negative = loss.
- Balance Sheet: Financial statement showing a company's assets, liabilities, and equity at a specific point in time. Follows the accounting equation: Assets = Liabilities + Equity.
- Income Statement (Profit & Loss Statement): Financial statement summarizing revenues and expenses over a period. Shows profitability.
- Cash Flow Statement: Financial statement tracking cash inflows and outflows over a period. Shows cash generation and use.
- Account Receivable: Amounts owed to a company by customers for goods or services delivered but not yet paid.
- Account Payable: Amounts owed by a company to suppliers for goods or services received but not yet paid.
- Net Income: Bottom line of the income statement, calculated by subtracting total expenses from total revenue.
- Gross Profit: Revenue minus the cost of goods sold.
- Operating Expenses: Business costs not directly tied to production, such as salaries, rent, and utilities.
- Interest Expense: Costs of borrowing money.
- Depreciation: Allocation of a tangible asset's cost over its useful life.
- Accumulated Depreciation: Total depreciation expense over an asset's lifetime.
- Inventory: Goods held for sale in the ordinary course of business.
Financial Concepts
- Liquidity: A company's ability to meet short-term obligations. Liquid assets convert quickly to cash.
- Solvency: A company's ability to meet long-term obligations.
- Financial Statements: Formal records of a business's financial activities (balance sheet, income statement, cash flow statement). Used to assess financial health and performance.
Financial Ratios
- Current Ratio: Measures a company's ability to pay short-term obligations (Current Assets / Current Liabilities).
- Debt-to-Equity Ratio: Indicates proportion of financing from debt vs. equity (Total Debt / Total Equity).
- Return on Assets (ROA): Measures efficiency of asset use to generate profit (Net Income / Total Assets).
- Return on Equity (ROE): Measures efficiency of shareholder equity use to generate profit (Net Income / Shareholder's Equity).
- Gross Profit Margin: Percentage of revenue remaining after deducting cost of goods sold ((Revenue - Cost of Goods Sold) / Revenue).
Financial Markets
- Stock Market: Place where stocks (shares) of publicly listed companies are bought and sold.
- Bond Market: Market where governments and corporations issue debt securities (bonds) to raise capital.
- Capital Market: Broad term for financial markets trading long-term debt and equity instruments.
- Primary Market: Market where companies issue new securities.
- Secondary Market: Market where existing securities are traded among investors.
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Description
Test your knowledge on key financial terms including asset, liability, equity, and more. This quiz will help reinforce your understanding of fundamental financial concepts. Prepare to dive into the essentials of finance!
