Western Governors University
LANIF · 577D
★ ★
WGU College of Business
EST. 1997
A NEW KIND OF U. — CHANGING LIVES THROUGH OPPORTUNITY
WGU D775 — Final Examination
I N T R O D U CT I O N TO B US I N E SS F I N A N C E
INSTITUTION Western Governors University COURSE CODE D775
PROGRAM Bachelor of Science — Business ACADEMIC YEAR
Administration
EXAM TITLE Final Examination — Introduction TOTAL QUESTIONS 35 Questions
to Business Finance
COURSE TITLE Introduction to Business Finance FORMAT Multiple Choice — Select the
Single Best Answer
EXAMINATION INSTRUCTIONS
▸ Select the single best answer for each question.
▸ This exam covers financial ratios, financial statements, time value of money, capital budgeting, and
ethics in finance.
▸ Formulas, definitions, and conceptual applications are all testable content.
▸ Correct answers and clinical/academic rationales appear below each question for review purposes.
, SECTION I — BUSINESS FINANCE: RATIOS, STATEMENTS,
Questions 1 – 35
T VM & ETHICS
1. Financial ratios are often compared to a company's "vital signs." What is the most accurate
description of their purpose in financial analysis?
A. They provide definitive final answers about a company's financial health.
B. They help you ask better questions and diagnose financial health, but do not give final
answers.
C. They replace the need for reading the full set of financial statements.
D. They are only useful for comparing companies in different industries.
CORRECT ANSWER B — They help you ask better questions and diagnose financial health, but
do not give final answers.
RATIONALE Financial ratios are diagnostic tools analogous to vital signs in medicine — they
indicate areas of concern and prompt deeper investigation, but they never
provide definitive conclusions on their own. Ratios must be interpreted in
context: industry norms, historical trends, and the broader economic
environment all affect their meaning. A low current ratio, for example, may signal
liquidity problems in one industry but be entirely normal in another.
2. Which financial statement is best described as a "snapshot" of what a company owns and
owes at one specific point in time?
A. Income statement
B. Statement of cash flows
C. Balance sheet
D. Statement of retained earnings
CORRECT ANSWER C — Balance sheet
RATIONALE The balance sheet captures the accounting equation (Assets = Liabilities + Equity)
at a single moment in time — typically quarter-end or year-end. It is
fundamentally a stock measure, showing accumulated balances. In contrast, the
income statement and statement of cash flows are flow measures covering a
period of time (e.g., "for the year ended December 31"). This snapshot vs. video
distinction is foundational to understanding financial statements.
, 3. The income statement is often described as a "video" rather than a snapshot. What does it
show?
A. Assets and liabilities at a single point in time
B. Revenue, expenses, and profit over a period of time
C. Cash inflows and outflows from operating activities only
D. Changes in shareholders' equity from stock issuances
CORRECT ANSWER B — Revenue, expenses, and profit over a period of time
RATIONALE The income statement is a flow statement covering a defined period (month,
quarter, year). It begins with revenue (sales), subtracts various categories of
expenses (COGS, operating expenses, interest, taxes), and arrives at net income —
the "bottom line." Unlike the balance sheet's snapshot, the income statement
reveals performance dynamics over time, making it essential for trend analysis
and profitability assessment.
4. Liquidity ratios address which fundamental question about a company's financial health?
A. Are we making real money?
B. How much risky debt are we using?
C. Can we survive and pay payroll soon?
D. What do investors think we're worth?
CORRECT ANSWER C — Can we survive and pay payroll soon?
RATIONALE Liquidity ratios measure a company's ability to meet short-term obligations as
they come due — payroll, supplier invoices, short-term debt. They address the
fundamental survival question: does the company have sufficient liquid resources
to avoid insolvency in the near term? The current ratio, quick ratio, and cash ratio
form a spectrum from broadest to strictest liquidity measurement.
LANIF · 577D
★ ★
WGU College of Business
EST. 1997
A NEW KIND OF U. — CHANGING LIVES THROUGH OPPORTUNITY
WGU D775 — Final Examination
I N T R O D U CT I O N TO B US I N E SS F I N A N C E
INSTITUTION Western Governors University COURSE CODE D775
PROGRAM Bachelor of Science — Business ACADEMIC YEAR
Administration
EXAM TITLE Final Examination — Introduction TOTAL QUESTIONS 35 Questions
to Business Finance
COURSE TITLE Introduction to Business Finance FORMAT Multiple Choice — Select the
Single Best Answer
EXAMINATION INSTRUCTIONS
▸ Select the single best answer for each question.
▸ This exam covers financial ratios, financial statements, time value of money, capital budgeting, and
ethics in finance.
▸ Formulas, definitions, and conceptual applications are all testable content.
▸ Correct answers and clinical/academic rationales appear below each question for review purposes.
, SECTION I — BUSINESS FINANCE: RATIOS, STATEMENTS,
Questions 1 – 35
T VM & ETHICS
1. Financial ratios are often compared to a company's "vital signs." What is the most accurate
description of their purpose in financial analysis?
A. They provide definitive final answers about a company's financial health.
B. They help you ask better questions and diagnose financial health, but do not give final
answers.
C. They replace the need for reading the full set of financial statements.
D. They are only useful for comparing companies in different industries.
CORRECT ANSWER B — They help you ask better questions and diagnose financial health, but
do not give final answers.
RATIONALE Financial ratios are diagnostic tools analogous to vital signs in medicine — they
indicate areas of concern and prompt deeper investigation, but they never
provide definitive conclusions on their own. Ratios must be interpreted in
context: industry norms, historical trends, and the broader economic
environment all affect their meaning. A low current ratio, for example, may signal
liquidity problems in one industry but be entirely normal in another.
2. Which financial statement is best described as a "snapshot" of what a company owns and
owes at one specific point in time?
A. Income statement
B. Statement of cash flows
C. Balance sheet
D. Statement of retained earnings
CORRECT ANSWER C — Balance sheet
RATIONALE The balance sheet captures the accounting equation (Assets = Liabilities + Equity)
at a single moment in time — typically quarter-end or year-end. It is
fundamentally a stock measure, showing accumulated balances. In contrast, the
income statement and statement of cash flows are flow measures covering a
period of time (e.g., "for the year ended December 31"). This snapshot vs. video
distinction is foundational to understanding financial statements.
, 3. The income statement is often described as a "video" rather than a snapshot. What does it
show?
A. Assets and liabilities at a single point in time
B. Revenue, expenses, and profit over a period of time
C. Cash inflows and outflows from operating activities only
D. Changes in shareholders' equity from stock issuances
CORRECT ANSWER B — Revenue, expenses, and profit over a period of time
RATIONALE The income statement is a flow statement covering a defined period (month,
quarter, year). It begins with revenue (sales), subtracts various categories of
expenses (COGS, operating expenses, interest, taxes), and arrives at net income —
the "bottom line." Unlike the balance sheet's snapshot, the income statement
reveals performance dynamics over time, making it essential for trend analysis
and profitability assessment.
4. Liquidity ratios address which fundamental question about a company's financial health?
A. Are we making real money?
B. How much risky debt are we using?
C. Can we survive and pay payroll soon?
D. What do investors think we're worth?
CORRECT ANSWER C — Can we survive and pay payroll soon?
RATIONALE Liquidity ratios measure a company's ability to meet short-term obligations as
they come due — payroll, supplier invoices, short-term debt. They address the
fundamental survival question: does the company have sufficient liquid resources
to avoid insolvency in the near term? The current ratio, quick ratio, and cash ratio
form a spectrum from broadest to strictest liquidity measurement.
