Financial Analysis Flashcards

A coaching client wants to know how profitable their division was over the last quarter. Which financial statement should they review first?

Answer: Income statement

The income statement reports revenue, expenses, and net income over a period of time.

Which equation is the basis of the balance sheet?

Answer: Assets = Liabilities + Equity

The balance sheet always balances because a company's assets are funded by either liabilities or owners' equity.

What are the three sections of a cash flow statement?

Answer: Operating, investing, and financing activities

The cash flow statement groups cash movements into operating, investing, and financing activities.

A business unit has $500,000 in revenue and $300,000 in cost of goods sold. What is its gross margin?

Answer: 40%

Gross margin = (revenue − COGS) ÷ revenue = $200,000 ÷ $500,000 = 40%.

A company has $400,000 in current assets and $200,000 in current liabilities. What is its current ratio, and what does it suggest?

Answer: 2.0; the company can comfortably cover its short-term obligations

Current ratio = current assets ÷ current liabilities = 2.0, which indicates healthy short-term liquidity.

What does EBITDA measure?

Answer: Earnings before interest, taxes, depreciation, and amortization

EBITDA approximates operating profitability by removing financing, tax, and non-cash accounting effects.

A coachee notices that accounts receivable is growing much faster than sales. What does this most likely indicate?

Answer: Customers are paying more slowly, which may signal collection problems

When receivables grow faster than sales, cash is being collected more slowly, which can strain liquidity.