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Financial Management Basics Test Online

Mustansar KhanLast Updated: July 8, 2025

Financial Management Basics Test Online

Financial Management Basics Test

Total Questions:	41
Time Allowed:	20 Minutes
Total Marks:	41
How to Attempt Test:	Please choose the right Option in MCQ-type question.
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1. What does "liquidity" refer to in financial management?

The company's ability to generate profits

The company’s ability to manage its long-term debt

The company’s ability to pay short-term obligations with its available assets

The company’s ability to raise capital from investors

2. Which of the following financial ratios measures a company’s profitability?

Return on Assets (ROA)

Inventory Turnover

Debt-to-Equity Ratio

Current Ratio

3. Which of the following is a source of long-term financing?

Commercial paper

Accounts payable

Bonds

Bank overdraft

4. What does the "break-even point" refer to in financial management?

The point where total expenses exceed total revenue

The level of sales at which total revenue equals total costs

The point where fixed costs are fully covered

The level of sales at which profits are maximized

5. What is the primary purpose of financial forecasting?

To estimate future financial outcomes based on historical data

To create tax strategies for the company

To assess a company's profitability for the current year

To determine the company’s tax liabilities

6. Which of the following is a characteristic of "diversification" in financial management?

Focusing on a single investment to maximize returns

Spreading investments across different assets to reduce risk

Increasing the company’s short-term liabilities

Reducing the company’s debt levels

7. Which of the following is an example of a non-cash expense?

Sales revenue

Depreciation

Dividend payments

Interest expense

8. Which of the following is an example of a short-term financing source?

Commercial paper

Shareholder equity

Long-term bonds

Retained earnings

9. What does the term "capital budgeting" refer to?

The process of managing cash flow

The process of determining tax rates

The process of deciding where to invest in long-term assets

The process of managing short-term liabilities

10. Which of the following is a purpose of conducting a financial analysis?

To assess a company’s financial health and performance

To determine how much profit a company should generate

To calculate the tax liabilities of a company

To set the price for products and services

11. What does the "return on investment" (ROI) measure?

The potential for future growth

The liquidity of a company’s assets

The efficiency of an investment in generating profit

The company's debt-to-equity ratio

12. Which of the following is an example of a long-term liability?

Accounts payable

Wages payable

Bank overdraft

Bonds payable

13. What is "financial leverage"?

Increasing shareholder equity without debt

Investing profits into long-term assets

Using debt to increase the return on equity

Reducing business expenses

14. What does the "time value of money" principle state?

Money depreciates in value at a fixed rate

Money has no value over time

Money received today is worth more than the same amount received in the future

The value of money remains constant over time

15. Which of the following best defines "capital expenditure"?

Money spent on purchasing long-term assets, such as property or machinery

Money spent on advertising and promotions

Money spent on everyday operations of the business

Money paid as dividends to shareholders

16. What does the "capital asset pricing model" (CAPM) help determine in financial management?

The total market value of a company’s stock

The cost of equity capital

The amount of debt financing a company should use

The appropriate amount of inventory to maintain

17. What is the main purpose of the "profitability" ratio in financial management?

To evaluate the efficiency of asset utilization

To calculate the company’s debt levels

To determine the company’s financial stability

To measure the company’s ability to generate profits from its resources

18. What is working capital?

The capital invested by shareholders

The long-term capital employed in the business

The difference between current assets and current liabilities

The total assets of a company

19. Which of the following best describes an "income statement"?

A report detailing a company’s assets and liabilities

A statement showing the revenue, expenses, and profit of a company over a period

A financial plan for future growth

A document that shows the company's stock price

20. Which of the following is a characteristic of "equity financing"?

It increases the company’s liabilities

It requires repayment with interest

It involves selling a stake in the company

It provides a guaranteed return on investment

21. Which of the following is a key characteristic of debt financing?

It requires giving up ownership in the company

It is a form of long-term equity investment

The company must repay the principal along with interest

It does not need to be repaid

22. Which of the following is a key function of financial management?

Making investment decisions

Designing marketing strategies

Managing human resources

Ensuring that tax laws are followed

23. Which of the following is an example of equity financing?

Bank loans

Short-term borrowings

Issuing shares to the public

Selling bonds

24. Which of the following is a financial management activity related to capital structure?

Deciding how much money to spend on marketing

Determining the product pricing strategy

Deciding on the inventory turnover rate

Determining the balance between debt and equity financing

25. What is the "cash conversion cycle"?

The time taken to pay off creditors

The time taken to convert cash into inventory and back into cash through sales

The time it takes for the company to generate income

The period between the acquisition of raw materials and the sale of finished goods

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26. Which of the following is the primary objective of financial management?

To minimize costs

To maximize profits

To ensure legal compliance

To maximize the value of the firm for its shareholders

27. Which of the following is a typical indicator of a company’s financial performance?

Number of employees

Market value of its stock

The size of its physical assets

Company’s brand recognition

28. What is the primary role of a financial manager in a company?

To manage human resources

To prepare the company’s financial statements

To handle the company's marketing and sales

To decide how to allocate funds in the business to maximize shareholder value

29. Which of the following is considered a "liquid" asset?

Land

Cash

Equipment

Building

30. What does the "operating margin" measure in financial management?

The total expenses as a percentage of revenue

The return on investment in long-term assets

The profitability of a company’s core operations

The efficiency of asset management

31. Which of the following is a characteristic of a "highly leveraged" company?

The company relies mostly on retained earnings

The company has minimal debt

The company has a large amount of equity financing

The company has a high proportion of debt compared to equity

32. Which of the following is an example of a financial risk?

Increased marketing expenses

High employee turnover

Market fluctuations in stock prices

Company expansion into new markets

33. Which of the following is considered a current asset?

Land

Equipment

Buildings

Cash

34. What is the "cost of capital"?

The cost of producing goods for sale

The total revenue generated by a company

The profit margin on goods sold

The cost incurred by a company to obtain funds, including both equity and debt

35. Which of the following is a type of financial statement that shows the company’s financial position at a specific point in time?

Cash flow statement

Statement of retained earnings

Balance sheet

Income statement

36. What is the formula for calculating the current ratio?

Net income ÷ Shareholder equity

Total assets ÷ Total liabilities

Current assets ÷ Current liabilities

Total revenue ÷ Total expenses

37. Which financial ratio measures the ability of a company to meet its short-term obligations?

Current ratio

Debt-to-equity ratio

Price-to-earnings ratio

Gross profit margin

38. What is the "net present value" (NPV) in capital budgeting?

The total cost incurred from financing a project

The future value of all future cash flows

The total revenue generated from an investment

The current value of future cash inflows minus the investment

39. What is the "time horizon" in financial planning?

The period over which financial resources are expected to be used or invested

The length of time it takes to prepare financial reports

The period over which liabilities are to be settled

The expected period of profitability for a business

40. What does the debt-to-equity ratio measure?

The ratio of current liabilities to total liabilities

The profitability of a company

The proportion of a company's capital that comes from equity

The proportion of assets financed by debt

41. Which of the following is an example of a "non-cash" expense?

Rent

Interest payments

Wages

Depreciation

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Mustansar KhanLast Updated: July 8, 2025

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Financial Management Basics Test Online

Financial Management Basics Test Online

Financial Management Basics Test

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