Mastering TOEIC Reading: Interpreting Financial Reports and Summaries

TOEIC Reading Practice Test: Financial Reports and Summaries

Part 1: Incomplete Sentences

1. The company’s annual report shows a significant ____ in revenue compared to last year.
   A. increase
   B. decreased
   C. rising
   D. growth

2. The balance sheet ____ the company’s assets, liabilities, and shareholders’ equity.
   A. summarizes
   B. summaries
   C. summary
   D. summarized

3. Investors carefully analyze financial ____ before making investment decisions.
   A. statements
   B. reports
   C. documents
   D. papers

4. The income statement provides a detailed ____ of the company’s revenues and expenses.
   A. breakdown
   B. break down
   C. broke down
   D. breaking down

5. The company’s profit margin has ____ steadily over the past five years.
   A. increased
   B. decreasing
   C. increase
   D. decreased

6. The auditor’s report ____ an unqualified opinion on the financial statements.
   A. expressed
   B. expresses
   C. expressing
   D. expression

7. The cash flow statement shows how the company ____ and uses its cash.
   A. generates
   B. generated
   C. generation
   D. generating

8. The footnotes to the financial statements provide ____ information about accounting policies.
   A. additional
   B. addition
   C. added
   D. additive

9. The company’s debt-to-equity ratio indicates its ____ structure and financial risk.
   A. capital
   B. capitalize
   C. capitalization
   D. capitalizing

10. Analysts use financial ____ to compare the performance of different companies.
    A. ratios
    B. rates
    C. proportions
    D. percentages

11. The depreciation expense is ____ over the useful life of the asset.
    A. allocated
    B. allocating
    C. allocation
    D. allocate

12. The company’s ____ earnings represent profits that have not been distributed to shareholders.
    A. retained
    B. retaining
    C. retention
    D. retain

13. The liquidity ratio measures the company’s ability to ____ its short-term obligations.
    A. meet
    B. meeting
    C. met
    D. meets

14. The annual report includes a ____ discussion of the company’s performance and future prospects.
    A. management’s
    B. managements
    C. management
    D. managers

15. The company’s ____ statements are prepared in accordance with generally accepted accounting principles.
    A. financial
    B. finance
    C. financing
    D. financed

16. The inventory turnover ratio indicates how quickly the company ____ its inventory.
    A. sells
    B. selling
    C. sold
    D. sale

17. The company’s ____ value is calculated by multiplying the stock price by the number of outstanding shares.
    A. market
    B. marketing
    C. marketable
    D. marketed

18. The ____ sheet provides a snapshot of the company’s financial position at a specific point in time.
    A. balance
    B. balancing
    C. balanced
    D. balances

19. The company’s ____ statements are subject to an annual audit by an independent accounting firm.
    A. financial
    B. finance
    C. financing
    D. financed

20. The ____ of cash flows is divided into operating, investing, and financing activities.
    A. statement
    B. stating
    C. stated
    D. states

21. The company’s ____ ratio measures its ability to cover interest payments on its debt.
    A. interest coverage
    B. interest covering
    C. interest covered
    D. interest covers

22. The ____ analysis compares financial data over several accounting periods to identify trends.
    A. trend
    B. trending
    C. trended
    D. trends

23. The company’s ____ assets include cash, accounts receivable, and inventory.
    A. current
    B. currently
    C. currency
    D. currencies

24. The ____ per share is calculated by dividing net income by the number of outstanding shares.
    A. earnings
    B. earning
    C. earned
    D. earns

25. The company’s ____ structure refers to the mix of debt and equity used to finance its operations.
    A. capital
    B. capitalize
    C. capitalization
    D. capitalizing

26. The ____ sheet footnotes provide additional details about specific items in the financial statements.
    A. balance
    B. balancing
    C. balanced
    D. balances

27. The company’s ____ ratio measures its ability to pay off its debts using its assets.
    A. solvency
    B. solvent
    C. solving
    D. solved

28. The ____ of financial statements allows investors to compare the performance of different companies.
    A. standardization
    B. standardize
    C. standardized
    D. standards

29. The company’s ____ expenses include costs that are not directly related to production.
    A. operating
    B. operation
    C. operations
    D. operational

30. The ____ sheet presents the company’s assets, liabilities, and shareholders’ equity in order of liquidity.
    A. balance
    B. balancing
    C. balanced
    D. balances

Part 2: Text Completion

Questions 31-34 refer to the following text:

Financial reports are essential tools for investors and analysts to evaluate a company’s performance. The three main financial statements are the income statement, balance sheet, and cash flow statement. The income statement shows a company’s revenues and expenses over a specific period, while the (31) provides a snapshot of its assets, liabilities, and shareholders’ equity at a particular point in time. The (32) statement tracks the inflows and outflows of cash, categorized into operating, investing, and financing activities. Together, these statements offer a comprehensive view of a company’s financial health and (33) . Analysts often use financial ratios derived from these statements to compare companies and assess their (34) performance.

31. A. profit and loss statement
    B. balance sheet
    C. cash flow statement
    D. annual report

32. A. income
    B. equity
    C. cash flow
    D. profit

33. A. products
    B. employees
    C. operations
    D. competitors

34. A. operational
    B. marketing
    C. human resources
    D. research and development

Questions 35-38 refer to the following text:

Interpreting financial summaries requires a solid understanding of accounting principles and business operations. One key aspect is analyzing trends over time. By comparing financial data across multiple periods, analysts can identify patterns in revenue growth, profit margins, and other key (35) . Another important skill is ratio analysis, which involves calculating various financial ratios to assess a company’s liquidity, profitability, and (36) . For example, the current ratio measures a company’s ability to pay short-term obligations, while the return on equity ratio indicates how efficiently a company uses its shareholders’ investments. It’s also crucial to consider the (37) in which the company operates, as industry-specific factors can significantly impact financial performance. Lastly, analysts should always read the (38) to the financial statements, as they often contain important information about accounting policies and potential risks.

35. A. metrics
    B. products
    C. employees
    D. locations

36. A. marketing strategy
    B. product quality
    C. efficiency
    D. customer service

37. A. office
    B. industry
    C. country
    D. department

38. A. introduction
    B. conclusion
    C. footnotes
    D. appendix

Questions 39-42 refer to the following text:

When analyzing financial reports, it’s important to consider both quantitative and qualitative factors. Quantitative analysis involves examining numerical data and financial ratios, while qualitative analysis focuses on non-financial information such as management quality, competitive position, and industry trends. One key quantitative measure is the (39) ratio, which compares a company’s total liabilities to its shareholders’ equity. This ratio provides insight into the company’s capital structure and financial risk. On the qualitative side, investors should pay attention to the (40) discussion and analysis (MD&A) section of the annual report, where management provides commentary on the company’s performance and future outlook. It’s also crucial to consider the (41) environment, including factors such as regulatory changes, technological advancements, and shifts in consumer behavior. By combining quantitative and qualitative analysis, investors can gain a more (42) understanding of a company’s financial health and prospects.

39. A. profit margin
    B. inventory turnover
    C. debt-to-equity
    D. price-to-earnings

40. A. marketing
    B. management’s
    C. financial
    D. operational

41. A. office
    B. competitive
    C. internal
    D. personal

42. A. biased
    B. limited
    C. comprehensive
    D. superficial

Questions 43-46 refer to the following text:

Financial summaries often include key performance indicators (KPIs) that provide a quick overview of a company’s financial health. One important KPI is EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), which measures a company’s operating performance without the influence of financial and accounting decisions. Another crucial metric is the (43) margin, which shows the percentage of revenue that translates into profit. Investors also pay close attention to the (44) ratio, which measures a company’s ability to generate profit from its assets. When interpreting these KPIs, it’s important to consider them in the context of the company’s industry and (45) . For example, capital-intensive industries typically have lower asset turnover ratios compared to service-based industries. Additionally, analysts should be aware of potential limitations in financial summaries, such as the use of (46) accounting methods that may affect the comparability of financial data across different companies or time periods.

43. A. gross
    B. net profit
    C. operating
    D. tax

44. A. debt-to-equity
    B. current
    C. quick
    D. return on assets

45. A. competitors
    B. employees
    C. products
    D. customers

46. A. standard
    B. non-standard
    C. outdated
    D. simplified

Answer Key

Part 1: Incomplete Sentences

1. A
2. A
3. A
4. A
5. A
6. B
7. A
8. A
9. A
10. A
11. A
12. A
13. A
14. A
15. A
16. A
17. A
18. A
19. A
20. A
21. A
22. A
23. A
24. A
25. A
26. A
27. A
28. A
29. A
30. A

Part 2: Text Completion

31. B
32. C
33. C
34. A
35. A
36. C
37. B
38. C
39. C
40. B
41. B
42. C
43. B
44. D
45. A
46. B

Financial KPIs and Performance Indicators for TOEIC

By completing this practice test, you’ve engaged with key concepts related to interpreting financial reports and summaries. Remember to review the questions you found challenging and focus on understanding the underlying financial principles. This will help you improve your performance in the TOEIC Reading section, particularly when dealing with business and finance-related texts.