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 its costs 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 to evaluate 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 (long-term solvency). Profitability and generating excess cash are important factors, but they are not the primary questions when evaluating a balance sheet. Choice D accurately reflects the two primary questions.

When Evaluating a Balance Sheet, the Two Primary Questions Are