Financial Analysis Techniques practice questions

What to know

Identify the rule, formula, or decision criterion before reading the answer choices. CFA Level I distractors often use the right vocabulary with the wrong condition.

How to practice

Work each item under time pressure, then compare your reasoning with the step-by-step explanation and key takeaway.

Review signal

Missed questions should become scheduled reviews when the error comes from a concept gap, formula setup, or answer-choice trap.

Financial Statement Analysis

Financial Analysis Techniques

An analyst compares the operating margin of a beverage company with the operating margins of its industry competitors for the same fiscal year. This comparison is best described as:

Financial Statement Analysis

Financial Analysis Techniques

Elena Vasquez analyzes the segment disclosures of a conglomerate. The Consumer segment reports revenue of $400 million and average segment assets of $250 million; the Industrial segment reports revenue of $300 million and average segment assets of $300 million. The Consumer segment's asset turnover is closest to:

Financial Statement Analysis

Financial Analysis Techniques

Arjun Mehta assembles the following data for a company: net income $120 million, pretax income $160 million, operating income (EBIT) $200 million, revenue $2,000 million, average total assets $1,600 million, and average shareholders' equity $640 million. Using the five-part DuPont decomposition, ROE is closest to:

Financial Statement Analysis

Financial Analysis Techniques

Inventory turnover is most appropriately classified as a:

Financial Statement Analysis

Financial Analysis Techniques

A limitation of ratio analysis is that ratios:

Financial Statement Analysis

Financial Analysis Techniques

Revenue and credit sales are 1,200, cost of goods sold is 900, average receivables are 150, and the year has 365 days. Days sales outstanding is closest to:

Financial Statement Analysis

Financial Analysis Techniques

Net income is 80, average assets are 500, and average equity is 250. ROE is closest to:

Financial Statement Analysis

Financial Analysis Techniques

A company's net profit margin is 8%, total asset turnover is 1.5, and financial leverage is 2.0. ROE using three-part DuPont is closest to:

Financial Statement Analysis

Financial Analysis Techniques

A company has DSO of 40 days, days of inventory on hand of 70 days, and days payable outstanding (number of days of payables) of 35 days. Cash conversion cycle is closest to:

Financial Statement Analysis

Financial Analysis Techniques

Two companies have the same ROE. Company A has higher financial leverage and lower asset turnover than Company B. The most appropriate conclusion is:

Financial Statement Analysis

Financial Analysis Techniques

An analyst decomposes Marlowe Retail's ROE using the five-component extended DuPont model. In Year 1: tax burden 0.75, interest burden 0.90, EBIT margin 12%, asset turnover 1.2, financial leverage 2.0. In Year 2: tax burden 0.75, interest burden 0.80, EBIT margin 12%, asset turnover 1.2, financial leverage 2.5. The increase in ROE from Year 1 to Year 2 is most likely attributable to:

Financial Statement Analysis

Financial Analysis Techniques

An analyst compares two companies with identical ROE. Company X reports net income of USD 90 million on revenue of USD 1,500 million, average assets of USD 1,000 million, and average equity of USD 600 million. Company Y reports net income of USD 60 million on revenue of USD 1,200 million, average assets of USD 800 million, and average equity of USD 400 million. Based on a DuPont decomposition, the analyst most appropriately concludes that: