WGU D775 Introduction to Business Finance
Questions and Answers | Study Guide | Grade A+
• Balance sheet -✓✓Snapshot of what a company owns (assets) and owes
(liabilities) at one point in time.
• Income statement -✓✓Video of performance over a period; shows revenue,
expenses, and profit.
• Liquidity ratios -✓✓Measure ability to pay short-term bills; 'Can we survive/pay
payroll soon?'
• Activity/Efficiency ratios -✓✓Measure how well assets are used to generate
sales; 'Are we using our stuff well?'
• Leverage ratios -✓✓Measure debt use and financial risk; 'How much risky
rocket fuel (debt) are we using?'
• Profitability ratios -✓✓Measure how well the company turns sales/assets/equity
into profit; 'Are we making real money?'
• Market ratios -✓✓Link accounting/book values to investor market values; 'What
do investors think we're worth?'
• Current ratio -✓✓Current Assets / Current Liabilities; broad short-term liquidity
check.
• Quick ratio (acid test) -✓✓(Current Assets − Inventory) / Current Liabilities;
stricter liquidity—inventory may be hard to sell quickly.
• Cash ratio -✓✓Cash (and sometimes marketable securities) / Current Liabilities;
toughest liquidity stress test.
• Liquidity pattern -✓✓Current → Quick → Cash = easier → stricter → strictest
liquidity measures.
Questions and Answers | Study Guide | Grade A+
• Balance sheet -✓✓Snapshot of what a company owns (assets) and owes
(liabilities) at one point in time.
• Income statement -✓✓Video of performance over a period; shows revenue,
expenses, and profit.
• Liquidity ratios -✓✓Measure ability to pay short-term bills; 'Can we survive/pay
payroll soon?'
• Activity/Efficiency ratios -✓✓Measure how well assets are used to generate
sales; 'Are we using our stuff well?'
• Leverage ratios -✓✓Measure debt use and financial risk; 'How much risky
rocket fuel (debt) are we using?'
• Profitability ratios -✓✓Measure how well the company turns sales/assets/equity
into profit; 'Are we making real money?'
• Market ratios -✓✓Link accounting/book values to investor market values; 'What
do investors think we're worth?'
• Current ratio -✓✓Current Assets / Current Liabilities; broad short-term liquidity
check.
• Quick ratio (acid test) -✓✓(Current Assets − Inventory) / Current Liabilities;
stricter liquidity—inventory may be hard to sell quickly.
• Cash ratio -✓✓Cash (and sometimes marketable securities) / Current Liabilities;
toughest liquidity stress test.
• Liquidity pattern -✓✓Current → Quick → Cash = easier → stricter → strictest
liquidity measures.
