Financial Statement Analysis Flashcards
7 cards from real Banking Exam practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Statement Analysis flashcards as text
A company's inventory turnover ratio decreased from 8x to 4x. Which of the following is the most concerning interpretation?
Answer: The company may have obsolete or slow-moving inventory
A falling inventory turnover ratio means goods are sitting longer before being sold, which raises the risk of inventory becoming obsolete and needing write-downs.
Under IFRS, research costs are:
Answer: Expensed as incurred
IFRS requires research costs to be expensed as incurred; only development costs meeting specific criteria may be capitalized.
Which of the following would cause a company's operating leverage to be highest?
Answer: High fixed costs and low variable costs
High fixed costs create high operating leverage because a small change in revenue produces a large change in operating income.
A bank credit analyst is adjusting a borrower's EBITDA for non-recurring items. Which adjustment is most appropriate?
Answer: Removing one-time litigation settlement gains from adjusted EBITDA
Non-recurring gains like litigation settlements should be removed from EBITDA because they will not recur and overstate the borrower's sustainable cash-generating ability.
A leveraged buyout (LBO) target's financial statements show high EBITDA but very low free cash flow. The most likely cause is:
Answer: High capital expenditure requirements
High capex requirements consume cash generated from operations, resulting in low free cash flow despite strong EBITDA.
When a bank analyzes a real estate company's financial statements, which metric is most relevant for evaluating property-level performance?
Answer: Net operating income (NOI)
NOI (rental income minus operating expenses, before debt service) is the standard metric for evaluating real estate property profitability and loan feasibility.
Which of the following is the best indicator that a company is using aggressive revenue recognition practices?
Answer: Revenue growing much faster than accounts receivable collections
When revenue grows significantly faster than cash collections (i.e., accounts receivable), it may suggest revenue is being recognized prematurely or fraudulently.