Financial Statement Modeling Practice Test

These questions are part of the practice quiz. Start practicing

• Under what circumstances is monthly modeling preferred over annual modeling, and what are the trade-offs?
• Which approach is commonly used to reflect stock-based compensation on the balance sheet?
• What is the role of driver cells in implementing a scenario manager with multiple scenarios?
• As of 1/30/2016, what is the sum of the next 5 years' amortization expenses of AEO's intangible assets?
• What does the acronym LTM stand for in financial analysis?
• In this cash flow framework, where would you search for depreciation and amortization expense?
• What is the ending balance of merchandise inventory as of January 31, 2025?
• 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?
• How does revenue recognition timing differ between a SaaS subscription and a physical product sale, and what is the impact on the balance sheet?
• Under which scenario might negative retained earnings most likely be a cause for concern?
• What causes circular references in Excel modeling and how can you prevent them.
• What components are typically included in the calculation of the Weighted Average Cost of Capital (WACC)?
• 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?
• Differentiate fixed versus variable operating expenses and provide a forecasting approach for each in a model.
• Which item is used to calculate the DPO in the forecast described?
• How is diluted EPS calculated in a model?
• 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?
• Which item would appear in cash flow from financing activities?
• 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.
• What was AEO's share count on March 7, 2016?
• What constitutes a comprehensive end-to-end model check to ensure internal consistency?
• How would you forecast depreciation and amortization in a model that includes a capital expenditure plan?
• 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 does share repurchase affect a financial model's equity capitalization and per-share metrics?
• 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 items should be included in model footnotes to aid understanding and auditability?
• What is WACC and which inputs determine its value?
• In a debt model, how should you treat net borrowings when calculating FCFE?
• 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?
• How does Net Income flow into the balance sheet in a standard integrated model?
• What is the difference between free cash flow to the firm (FCFF) and free cash flow to equity (FCFE)?
• Which statement best defines cash flow from operations (CFO)?
• How should currency translation adjustments be treated in a consolidated model?
• 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?
• For purposes of forecasting, what investment is most likely included?
• What are essential model audit checks to ensure accuracy and consistency?
• 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?
• 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 elements should be included in an audit trail for financial models?
• Which currency symbol is used for the gross profit figures in the material?
• Define EBITDA, EBIT, and Net Income and explain how they flow from revenue to net income in a standard model.
• Which item is explicitly ignored when calculating the 2016 gross profit in the referenced example?
• How do you forecast income taxes in a multi-jurisdiction model?
• Which statement about dividends and net income is true?
• What is the depreciation expense for the year ending 1/30/2016?
• 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?
• Which action would, all else equal, likely increase the revolver balance?
• Which items are typically included in a debt schedule and how is interest expense calculated?
• What is a typical example of a circular reference in a financial model and how is it resolved?
• What are best practices for modelling foreign exchange exposure in a multinational company?
• Which metric expresses days of inventory outstanding?
• What is terminal value in a discounted cash flow model, and which methods can be used to calculate it?
• 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)
• In currency translation, which rate is typically used to translate the income statement (P&L)?
• In the PP&E balance calculation, which formula correctly computes the ending PP&E given beginning PP&E, capex, and depreciation?
• Which item is NOT an adjustment to net income when calculating cash flow from operations using the indirect method?
• Given the same data as above (revenue $10B, gross margin 65%, SG&A $2B), what is EBIT?
• Which statement best defines EBIT margin?
• What are DSO, DIO, and DPO, and how do changes in these working-capital drivers affect cash flow?
• Which asset is excluded from the quick ratio calculation?
• What non-cash items should you add back when calculating cash flow from operations?
• Why is maintaining version history important in model footnotes?
• 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?
• Depreciation expense for the year ending January 31, 2025 was which amount?
• How do you calculate gross margin and why is it a key driver in a financial model?
• The forecast scenario focuses on forecasting the financials of which company?
• In accrual accounting, how does revenue recognition affect accounts receivable and cash receipts?
• 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?
• 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?
• Why is it important to separately model maintenance capex from growth capex in a financial model?
• 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?
• How should tax loss carryforwards be modeled in a financial forecast?
• Under accrual accounting, which management decision could potentially inflate a company's earnings per share (EPS)?
• If a company uses accelerated depreciation rather than straight-line depreciation, how would net income be affected?
• From the list below, pick the assumption least susceptible to management discretion that could artificially increase profitability?
• Which statement best describes the forecasting of price/mix in revenue modeling?
• What percentage does the average selling price (ASP) increase when moving from $200 to $225?
• How should non-controlling interest be treated in a consolidated model?
• After adding projections for the empty Current Liability accounts, what is the balance of total current liabilities as of 1/31/2025?
• What is the purpose of separating inputs from calculations in an Excel model?
• Free cash flow is defined as cash flow from operations minus capital expenditures.
• When translating balance sheet accounts for foreign operations, which approach is typically used and where are translation adjustments recorded?
• What is the total revenue when 5.0 million units are sold at an average selling price of $225?
• The forecast year-end date used in the model is which of the following?
• Which scenario could cause the creation of deferred revenue?
• How is interest expense accounted for on the cash flow statement?
• Which practice best supports an auditable model and minimizes hard-coded values?
• In an indirect cash flow statement, what adjustments are made to net income to arrive at cash from operating activities?
• 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?
• Why should scheduling links be included in an audit trail?
• What is the dividend payout ratio based on the provided LTM data where net income was $80m and dividends were $16m?
• What is the primary purpose of building an integrated financial model that links the income statement, balance sheet, and cash flow statement?
• 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.
• 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.
• If capital structure changes due to equity dilution or debt issuance, what should you update in the model?
• If depreciation expense increases by $5m and the tax rate is 30%, what is the net cash impact?
• Which approach best facilitates comparison of scenario results?
• How do you implement a scenario manager with three scenarios and share the results?
• Which statement best describes the document used to reference the 2016 gross profit data?
• Which steps are involved when impairment is recognized in a financial model?
• 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?
• In which month and year is the analysis scenario set?
• 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.
• Why is indirect cash flow (starting from net income) used, and how are taxes and interest reflected?
• When would scenario analysis be preferred in evaluating project risk?
• In the 2016 data, the period ending for the gross profit figure is which date?
• 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
• 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?
• Given Net PP&E (excl. land) of 14,947 and Accumulated depreciation of 11,922, what is the gross depreciable PPE (excluding land)?
• How do lease accounting standards (IFRS 16 / ASC 842) affect a company's balance sheet and the P&L in a model?
• 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)?
• Which item is typically the largest cash outflow in the investing activities section of the cash flow statement?
• 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?
• Which statement best describes the equation used to compute ending retained earnings?
• 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?
• The $17.3 million figure cited in the AEO context represents which of the following?
• What are best practices for using named ranges and data validation in a financial model?
• Which components are used in calculating the current ratio?
• 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 ratio exceeding 1 can indicate a company has not yet reached maturity?
• When choosing a discount rate for a DCF model, what matters most?
• Which are the three core drivers of revenue in a model and how would you forecast them?
• Of the following changes in working capital line items, which represents an actual cash outflow?
• A company's cash balance has increased by $10 million. Which financing line item could have caused the increase?
• Which financial statement category would show the purchase of equipment?
• 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
• How should a model treat maintenance capex differently from growth capex?
• Which two ratios are used to measure liquidity?
• If beginning cash is $60 million and free cash flow is -$80 million, what is ending cash before any revolver draw?
• Which drivers are typically tested in sensitivity analyses for a financial model?
• Why can profitability and cash generation diverge in a financial model?
• How should debt covenants be modeled to anticipate breaches in a forecast?
• Which statement best describes amortization in the context of intangible assets purchases during 2017-2025?
• Define the cash conversion cycle and explain its significance in forecasting cash flow.
• What is the impact of leases on debt covenants and interest coverage ratios in a model?
• Which approach correctly implements scenario analysis in a financial model?
• What is the total debt across the three debt tranches discussed (60m, 40m, 20m)?
• What factors determine whether a deferred tax asset for tax loss carryforwards can be recognized?
• How do you calculate Free Cash Flow to Equity (FCFE) from a model?
• Which approach is NOT appropriate when modeling monthly revenue seasonality?
• Under inflationary conditions, how does the LIFO inventory method affect taxes and reported profits?
• 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)
• In a model, which components of working capital are typically modeled explicitly due to their impact on cash flow?
• The gross profit value for 1/31/2023 comes from which source in the 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?
• Which statement best describes why capital expenditures (Capex) are forecast in financial models?
• The operating cycle is typically defined as the sum of which two components?
• What type of document is being used to forecast the financials in this scenario?
• Which metric measures the average number of days to collect payment after a sale?
• What is the primary reason for separating non-operating items from ongoing operating results in a financial model?
• Where is non-controlling interest presented in consolidated financial statements?
• When modeling debt covenants in a financial model, which elements should be included?
• How does inventory method (FIFO vs LIFO) affect COGS, taxes, and cash flow in a model?
• Cash conversion cycle is calculated as CCC = DSO + DIO - DPO. Which formula correctly defines the cash conversion cycle?
• How should multi-jurisdiction tax considerations and transfer pricing be modeled?
• 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?
• Which financial statement shows a company’s financial position at a point in time?
• 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?
• What areas typically show differences between GAAP and IFRS in a financial model?
• Which of the following changes could contribute toward the value of net income exceeding cash from operations (CFO)?
• 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?
• The primary objective of the exercise is to forecast the financials of which company?
• Which of the core three financial statements is most commonly forecasted by itself?
• What is total Amortization for the year ending 1/31/2025 on ONLY new Intangibles purchases made during the years 2017-2025?
• Which of the following would be classified in cash flow from financing activities?
• Which statement best contrasts sensitivity analysis and scenario analysis and when to use each?
• What is the role of scenario analysis in an integrated financial model?
• What is a recommended practice for managing foreign exchange translation risk in financial modeling?
• 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?
• 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?
• In the acquisition example, what is the goodwill recognized on the acquirer’s balance sheet?
• What statement best describes the purpose of a dependency map in a financial model?
• Under GAAP reporting, what is the value of the machine on the balance sheet?
• After impairment is recognized, what is the expected effect on future depreciation expense?
• 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?
• Which item is not typically categorized as Non-Operating Income?
• Why should annual totals reconcile when applying monthly seasonality in forecasts?
• With revenues of $10 billion and a gross profit margin of 65%, what is gross profit?
• What is the role of the analyst described in the scenario?
• Depreciation is a non-cash expense that is added back to which section of the cash flow statement?