Business Degree Business Finance 1 — Questions and Answers
Question 1: What does the term 'liquidity' refer to in business finance?
- The ability to quickly convert assets to cash (Correct answer)
- The total value of company assets
- The ratio of debt to equity
- The profitability of a business
Correct answer: The ability to quickly convert assets to cash
Liquidity refers to how easily an asset can be converted into cash without significantly affecting its price.
Question 2: Which financial statement shows a company's revenues and expenses over a period of time?
- Balance sheet
- Cash flow statement
- Income statement (Correct answer)
- Statement of retained earnings
Correct answer: Income statement
The income statement (also called profit and loss statement) summarizes revenues, costs, and expenses during a specific period.
Question 3: What is the formula for calculating Return on Investment (ROI)?
- (Net Profit / Cost of Investment) × 100 (Correct answer)
- (Revenue / Total Assets) × 100
- (Equity / Debt) × 100
- (Gross Profit / Revenue) × 100
Correct answer: (Net Profit / Cost of Investment) × 100
ROI is calculated by dividing net profit by the cost of the investment and multiplying by 100 to get a percentage.
Question 4: What is a 'bond' in the context of business finance?
- A share of company ownership
- A debt instrument issued to raise capital (Correct answer)
- A type of insurance policy
- A government tax incentive
Correct answer: A debt instrument issued to raise capital
A bond is a fixed-income debt instrument where the issuer borrows funds from investors and promises to repay with interest.
Question 5: What does 'working capital' measure?
- Long-term investment capacity
- A company's short-term operational liquidity (Correct answer)
- Total shareholder equity
- Annual revenue growth
Correct answer: A company's short-term operational liquidity
Working capital is current assets minus current liabilities, measuring a company's ability to meet short-term obligations.
Question 6: Which concept refers to the idea that a dollar today is worth more than a dollar in the future?
- Compound interest
- Time value of money (Correct answer)
- Opportunity cost
- Inflation premium
Correct answer: Time value of money
The time value of money states that money available now is worth more than the same amount in the future due to its earning potential.
Business Degree Business Finance 1
What does the term 'liquidity' refer to in business finance?