Financial Statement Modeling Practice Test

These questions are part of the practice quiz. Start practicing

• How do you calculate gross margin and why is it a key driver in a financial model?
• Of the answer choices listed, which method of modeling an issuance of stock-based compensation on the balance sheet is most likely to be used in practice?
• How do you implement a scenario manager with three scenarios and share the results?
• How do you calculate Free Cash Flow to Equity (FCFE) from a model?
• What type of document is being used to forecast the financials in this scenario?
• What is the primary purpose of building an integrated financial model that links the income statement, balance sheet, and cash flow statement?
• Let's say a company has purchased a building for $20m, which will be depreciated under the straight-line approach. If the annual depreciation is equal to 0.5m each year, what is the useful life assumption being used? Assume the salvage value at the end of the useful life is equal to zero, and round your answer to the nearest whole number. Useful Life Assumption = _____ Years
• Based on the 2013 data, what is the useful life of existing, depreciable PP&E as of December 31, 2013? (round to nearest whole year)
• A company has a beginning intangible assets balance of $50m and had $20m in net additions, $10m in amortization expense, and $5m in write-offs during the current period. What is the ending balance of intangibles?
• The operating cycle is typically defined as the sum of which two components?
• Which metric measures the average number of days to collect payment after a sale?
• Which statement best contrasts sensitivity analysis and scenario analysis and when to use each?
• What is the purpose of separating inputs from calculations in an Excel model?
• Which item is NOT an adjustment to net income when calculating cash flow from operations using the indirect method?
• With revenues of $10 billion and a gross profit margin of 65%, what is gross profit?
• Which statement about dividends and net income is true?
• When translating balance sheet accounts for foreign operations, which approach is typically used and where are translation adjustments recorded?
• Which steps are involved when impairment is recognized in a financial model?
• What is the dividend payout ratio based on the provided LTM data where net income was $80m and dividends were $16m?
• What is WACC and which inputs determine its value?
• Which are the three core drivers of revenue in a model and how would you forecast them?
• What is the ending balance of merchandise inventory as of January 31, 2025?
• When modeling debt covenants in a financial model, which elements should be included?
• Which practice best supports an auditable model and minimizes hard-coded values?
• Forecast revenue using a price-volume build: ASP starts at $100 and increases by $10 each year; units start at 100,000 and decrease by 5,000 each year. After two years, how much has revenue changed?
• Which financial statement shows a company’s financial position at a point in time?
• What is the Net PP&E (excluding land) value as of 12/31/2013? (Given gross PP&E 28,519 and non-depreciable land 1,650; accumulated depreciation 11,922)
• To calculate the tax rate, you divide actual taxes paid by pre-tax income (EBT). Which type of tax rate is described by this formula?
• Depreciation expense for the year ending January 31, 2025 was which amount?
• What percentage does the average selling price (ASP) increase when moving from $200 to $225?
• Which statement best describes the equation used to compute ending retained earnings?
• What are essential model audit checks to ensure accuracy and consistency?
• In the PP&E balance calculation, which formula correctly computes the ending PP&E given beginning PP&E, capex, and depreciation?
• Of the following changes in working capital line items, which represents an actual cash outflow?
• Which statement best describes the forecasting of price/mix in revenue modeling?
• In the last twelve months, net income was $80m and dividends paid were $16m. If the payout ratio is kept constant and next period's net income is forecast at $125m, how much would be paid out to common shareholders?
• Given a 2014 share repurchase plan of $4 billion, an average share price of $60 for the year 2013, and expected EPS growth for 2014 of 10%, what should be the number of shares repurchased by the company be in your financial model?
• The forecast year-end date used in the model is which of the following?
• The $17.3 million figure cited in the AEO context represents which of the following?
• From the list below, pick the assumption least susceptible to management discretion that could artificially increase profitability?
• What non-cash items should you add back when calculating cash flow from operations?
• Which approach is NOT appropriate when modeling monthly revenue seasonality?
• Under accrual accounting, which management decision could potentially inflate a company's earnings per share (EPS)?
• Which of the following changes could contribute toward the value of net income exceeding cash from operations (CFO)?
• Suppose a company has acquired a competitor at a $50m purchase price with a fair market value (FMV) of $48m. Based on this hypothetical scenario, how much in goodwill is recognized on the acquirer’s balance sheet?
• Why is maintaining version history important in model footnotes?
• What constitutes a comprehensive end-to-end model check to ensure internal consistency?
• Under which scenario might negative retained earnings most likely be a cause for concern?
• Which action would, all else equal, likely increase the revolver balance?
• In a debt model, how should you treat net borrowings when calculating FCFE?
• How should a model treat maintenance capex differently from growth capex?
• Why can profitability and cash generation diverge in a financial model?
• A company has a beginning of period cash balance of $60 million, a minimum cash balance of $20 million, and its free cash flow for the current period was negative $80 million. How much does the company need to draw from its revolver?
• What statement best describes the purpose of a dependency map in a financial model?
• Why is it important to separately model maintenance capex from growth capex in a financial model?
• Which of the core three financial statements is most commonly forecasted by itself?
• After adding projections for the empty Current Liability accounts, what is the balance of total current liabilities as of 1/31/2025?
• What is a recommended practice for managing foreign exchange translation risk in financial modeling?
• If the difference in book and tax value is $8m in the next fiscal year and the tax rate is 30%, what is the Deferred Tax Liability created in that year?
• If a company has incurred total interest expense of $6.0 million and the tax rate is 25%, what is the value of the tax shield (tax savings) on the interest?
• Which items should be included in model footnotes to aid understanding and auditability?
• How do lease accounting standards (IFRS 16 / ASC 842) affect a company's balance sheet and the P&L in a model?
• If a company just initiated a new dividend plan to common shareholders, which of the following would NOT be an example of one of the impacts on the financial statements?
• Which ratio exceeding 1 can indicate a company has not yet reached maturity?
• Which item is not typically categorized as Non-Operating Income?
• Under inflationary conditions, how does the LIFO inventory method affect taxes and reported profits?
• What is the role of driver cells in implementing a scenario manager with multiple scenarios?
• Which item is typically the largest cash outflow in the investing activities section of the cash flow statement?
• Fill in the blank. A company has made payments in advance for insurance. As of the present date, these upfront payments are categorized as _____ on the balance sheet.
• Which of the following would be classified in cash flow from financing activities?
• Which currency symbol is used for the gross profit figures in the material?
• In the acquisition example, what is the goodwill recognized on the acquirer’s balance sheet?
• If beginning cash is $60 million and free cash flow is -$80 million, what is ending cash before any revolver draw?
• Which asset is excluded from the quick ratio calculation?
• Which approach is commonly used to reflect stock-based compensation on the balance sheet?
• What components are typically included in the calculation of the Weighted Average Cost of Capital (WACC)?
• Define the cash conversion cycle and explain its significance in forecasting cash flow.
• The primary objective of the exercise is to forecast the financials of which company?
• Which item would appear in cash flow from financing activities?
• Fill in the blank. If a company’s depreciation expense increased by $10m, what would be the net impact on cash? Assume the tax rate is 30.0% and round to the nearest whole number. Cash Impact = $_____m
• Which drivers are typically tested in sensitivity analyses for a financial model?
• What was AEO's share count on March 7, 2016?
• What is the primary reason for separating non-operating items from ongoing operating results in a financial model?
• What are best practices for modelling foreign exchange exposure in a multinational company?
• What is the total revenue when 5.0 million units are sold at an average selling price of $225?
• Which item is used to calculate the DPO in the forecast described?
• In the July 2017 forecast scenario for American Eagle Outfitters, using the model's assumptions, what is gross profit for the year ending 1/31/2023?
• For Questions 1-4, referring to AEO's latest 10-K, ignoring SBC included in COGS, what is gross profit for the year ending 1/30/2016?
• Depreciation is a non-cash expense that is added back to which section of the cash flow statement?
• In which month and year is the analysis scenario set?
• In this cash flow framework, where would you search for depreciation and amortization expense?
• Mandatory Repayment in the current period given a beginning debt balance of $26 million and a fixed principal amortization of $30 million in each preceding year?
• Why is indirect cash flow (starting from net income) used, and how are taxes and interest reflected?
• How is diluted EPS calculated in a model?
• How should debt covenants be modeled to anticipate breaches in a forecast?
• The forecast scenario focuses on forecasting the financials of which company?
• Why should annual totals reconcile when applying monthly seasonality in forecasts?
• Depreciation expense found in the SG&A line of the income statement for a manufacturing firm would most likely be attributable to the wear and tear of which asset?
• If depreciation expense increases by $5m and the tax rate is 30%, what is the net cash impact?
• In currency translation, which rate is typically used to translate the income statement (P&L)?
• Why should scheduling links be included in an audit trail?
• A company's cash balance has increased by $10 million. Which financing line item could have caused the increase?
• Given the same data as above (revenue $10B, gross margin 65%, SG&A $2B), what is EBIT?
• How would you forecast depreciation and amortization in a model that includes a capital expenditure plan?
• How does revenue recognition timing differ between a SaaS subscription and a physical product sale, and what is the impact on the balance sheet?
• Which statement best defines EBIT margin?
• Fill in the blank: In the latest fiscal year, a company had $90m in pre-tax income (EBT) and incurred $27m in taxes. Assuming the LTM effective tax rate is straight-lined across the rest of the forecast, how much would the tax expense amount to if taxable income is $120m?
• Which two ratios are used to measure liquidity?
• If 5.0 million units are sold and the ASP increases from $200 to $225 while volume remains constant, what is the percent growth in revenue due to price alone?
• What causes circular references in Excel modeling and how can you prevent them.
• In a model, which components of working capital are typically modeled explicitly due to their impact on cash flow?
• How is interest expense accounted for on the cash flow statement?
• How should non-controlling interest be treated in a consolidated model?
• How should currency translation adjustments be treated in a consolidated model?
• What does the acronym LTM stand for in financial analysis?
• What is the impact of leases on debt covenants and interest coverage ratios in a model?
• Differentiate fixed versus variable operating expenses and provide a forecasting approach for each in a model.
• What areas typically show differences between GAAP and IFRS in a financial model?
• What is the role of scenario analysis in an integrated financial model?
• Which financial statement category would show the purchase of equipment?
• Given Net PP&E (excl. land) of 14,947 and Accumulated depreciation of 11,922, what is the gross depreciable PPE (excluding land)?
• Which items are typically included in a debt schedule and how is interest expense calculated?
• Free cash flow is defined as cash flow from operations minus capital expenditures.
• If the minimum cash balance is $20 million and the company starts with $60 million in cash and the free cash flow is -$80 million, what is the ending cash balance after the revolver draw to satisfy the minimum?
• Which item is explicitly ignored when calculating the 2016 gross profit in the referenced example?
• What is the difference between free cash flow to the firm (FCFF) and free cash flow to equity (FCFE)?
• When choosing a discount rate for a DCF model, what matters most?
• If a company uses accelerated depreciation rather than straight-line depreciation, how would net income be affected?
• Define EBITDA, EBIT, and Net Income and explain how they flow from revenue to net income in a standard model.
• What is the total debt across the three debt tranches discussed (60m, 40m, 20m)?
• What is terminal value in a discounted cash flow model, and which methods can be used to calculate it?
• What is a typical example of a circular reference in a financial model and how is it resolved?
• If beginning cash is $21.0m, minimum cash is $5.0m, and the cash available to pay down the revolver is $28.5m, assuming the only variable not stated is the current-period free cash flow, the FCF generated must have been $___m.
• Which approach correctly implements scenario analysis in a financial model?
• Cash conversion cycle is calculated as CCC = DSO + DIO - DPO. Which formula correctly defines the cash conversion cycle?
• Let's say a company has $80m in COGS and an average balance of $16m in accounts payable. If the days payable outstanding (DPO) is straight-lined across the forecast - what is the projected A/P balance if COGS is anticipated to be $100mm? Assume the DPO formula uses the average between the beginning and ending balance of A/P, and 365 for the number of days in a period.
• If the operating cycle is 80 days and the net operating cycle is 50 days, the days payable outstanding (DPO) is equal to how many days?
• The gross profit value for 1/31/2023 comes from which source in the model?
• How does share repurchase affect a financial model's equity capitalization and per-share metrics?
• The share price of a company has increased from $75.00 to $82.50 over the past two years. How much has the share price gained on a percentage basis?
• How should multi-jurisdiction tax considerations and transfer pricing be modeled?
• In the 2016 data, the period ending for the gross profit figure is which date?
• How do you forecast income taxes in a multi-jurisdiction model?
• From 12/31/2020 to 12/31/2025 revenue grows from $20m to $25m. If you're attempting to calculate the CAGR, which formula correctly outputs the CAGR?
• Which statement best defines cash flow from operations (CFO)?
• Which scenario could cause the creation of deferred revenue?
• Three tranches of debt are $60 million at 5.25%, $40 million at 6.95%, and $20 million at 8.75%. What is the weighted average interest rate (rounded to one decimal, no percent sign)?
• How does Net Income flow into the balance sheet in a standard integrated model?
• If capital structure changes due to equity dilution or debt issuance, what should you update in the model?
• As of 1/30/2016, what is the sum of the next 5 years' amortization expenses of AEO's intangible assets?
• What factors determine whether a deferred tax asset for tax loss carryforwards can be recognized?
• Which statement best describes amortization in the context of intangible assets purchases during 2017-2025?
• Which elements should be included in an audit trail for financial models?
• With projected revenues of $10 billion, a gross profit margin of 65%, and projected SG&A expenses of $2 billion, what is the company's operating (EBIT) margin?
• An average inventory balance of $20 million and COGS of $100 million in the latest year. If COGS in the next period is $110 million, approximately what would the average inventory balance be?
• The cash impact of the change in working capital when current assets increased by $40 million and current liabilities increased by $25 million is which of the following?
• Under what circumstances is monthly modeling preferred over annual modeling, and what are the trade-offs?
• In accrual accounting, how does revenue recognition affect accounts receivable and cash receipts?
• What is the role of the analyst described in the scenario?
• Where is non-controlling interest presented in consolidated financial statements?
• Which metric expresses days of inventory outstanding?
• When would scenario analysis be preferred in evaluating project risk?
• Which components are used in calculating the current ratio?
• Given 5.0m units sold, a 20.0% growth in the next year, and the average selling price rising from $200 to $225, what is the projected year-over-year revenue growth rate?
• After impairment is recognized, what is the expected effect on future depreciation expense?
• How should tax loss carryforwards be modeled in a financial forecast?
• In an indirect cash flow statement, what adjustments are made to net income to arrive at cash from operating activities?
• What is the depreciation expense for the year ending 1/30/2016?
• If a company had a property, plant & equipment (PP&E) balance of $100m in the prior period and incurred $25m in capital expenditures and $5m in depreciation during the current period - what is the PP&E balance in the current period?
• Under GAAP reporting, what is the value of the machine on the balance sheet?
• If 2014 net income were $4.0 billion (instead of $3.5 billion) and other items remain the same, what would the ending retained earnings be? Beginning retained earnings = $12.0 billion; preferred dividends = $0.1 billion; common dividends = $0.4 billion.
• Which approach best facilitates comparison of scenario results?
• Which statement best describes why capital expenditures (Capex) are forecast in financial models?
• What are DSO, DIO, and DPO, and how do changes in these working-capital drivers affect cash flow?
• A company reports 2014 revenues of $5 billion, 2013 accounts receivable of $400 million, and 2014 accounts receivable of $600 million. What are the days sales outstanding (DSO) for this company?
• For purposes of forecasting, what investment is most likely included?
• Which statement best describes the document used to reference the 2016 gross profit data?
• What are best practices for using named ranges and data validation in a financial model?
• How does inventory method (FIFO vs LIFO) affect COGS, taxes, and cash flow in a model?
• What is total Amortization for the year ending 1/31/2025 on ONLY new Intangibles purchases made during the years 2017-2025?