Accounting Basics
What is the formula for the Accounting Equation?
Assets = Liabilities + Equity
What does the Current Ratio measure?
A company’s ability to pay short-term debts.
What does NPV stand for?
Net Present Value
Formula for Working Capital?
Current Assets – Current Liabilities
What does EPS stand for?
Earnings Per Share
If a company has $120,000 in assets and $70,000 in liabilities, what is equity?
$50,000
Formula for Current Ratio?
Current Assets ÷ Current Liabilities
What is the purpose of NPV in finance?
To determine the value of an investment today based on future cash flows.
What does a negative working capital mean?
The company might struggle to pay short-term obligations.
What is the formula for EPS?
Net Income ÷ Shares Outstanding
True or False: The accounting equation must always balance after every transaction.
True
What is the formula for Return on Equity (ROE)?
Net Income ÷ Shareholder’s Equity
What makes an investment acceptable using NPV?
If NPV > 0
A company has $50,000 in current assets and $30,000 in current liabilities. What's its working capital?
$20,000
A company earns $80,000 with 8,000 shares. What’s its EPS?
$10
What do we call the difference between a company’s total assets and its total liabilities?
Equity
What does the Debt-to-Equity ratio measure?
The balance between borrowed funds and owner investment.
What does the "r" represent in the NPV formula?
The discount rate (interest or required rate of return)
Which ratio is stricter than the Current Ratio by excluding inventory?
Quick Ratio
Why is EPS important to investors?
It shows how much profit each share earns.
Which financial statement shows assets, liabilities, and equity?
Balance Sheet
A company with $100,000 liabilities and $50,000 equity has what Debt-to-Equity ratio?
2.0
Write the full NPV formula.
→ ∑ (Cash Flow / (1 + r)^t) – Initial Investment
Why is liquidity important to a business?
It shows whether a business can meet short-term obligations and keep running.
What financial statement shows changes in equity from net income and dividends?
Statement of Stockholders’ Equity