When evaluating a balance sheet, the two primary questions are ________.
A) whether a firm has sufficient short-term assets to cover its short-term debts and whether it is profitable
B) whether a firm is profitable and whether a firm is financially sound
C) whether a firm's cost of sales is going up and whether it is generating excess cash that could be used to pay down debt or pay dividends
D) whether a firm has sufficient short-term assets to cover its short-term debts and whether it is financially sound
E) whether a firm is profitable and whether it is generating excess cash that could be used to pay down debt or pay dividends

Question

Quizplus · Accepted Answer

The two primary questions when evaluating a balance sheet are whether a firm has sufficient short-term assets to cover its short-term debts (liquidity) and whether it is financially sound (solvency). Profitability and generating excess cash are important considerations, but they are not the primary focus when evaluating a balance sheet. Therefore, options A, B, and E are not the best choices. Option C is also not the best choice as it only focuses on cost of sales and generating excess cash, which are important but not the primary concerns when evaluating a balance sheet.

When Evaluating a Balance Sheet, the Two Primary Questions Are