CVA Financial Statement Analysis Flashcards
7 cards from real Certified Valuation Analyst practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 CVA Financial Statement Analysis flashcards as text
When normalizing earnings for a closely held company, which adjustment removes the effect of an owner paying themselves above-market compensation?
Answer: Adding back excess officer compensation to pre-tax earnings
Excess compensation above a market rate is added back to normalize earnings to what an arm's-length employer would pay.
A non-recurring lawsuit settlement expense appears in the income statement. In normalization, how should an analyst treat it?
Answer: Remove it as a non-recurring item
One-time, non-recurring items are removed so historical earnings reflect sustainable operations.
Which ratio best measures a company's ability to cover interest obligations from operating profit?
Answer: Times interest earned (EBIT / interest expense)
Times interest earned divides EBIT by interest expense to show how easily interest is covered.
An analyst restates LIFO inventory to FIFO for comparability. What account adjustment captures this difference?
Answer: The LIFO reserve
The LIFO reserve is added to LIFO inventory to approximate FIFO inventory values.
What does a steadily declining gross profit margin most likely signal in financial statement analysis?
Answer: Rising input costs or pricing pressure
A falling gross margin typically reflects increasing cost of goods sold or eroding pricing power.
In a common-size income statement, each line item is expressed as a percentage of which figure?
Answer: Net sales (revenue)
Common-size income statements express every line as a percent of net sales for comparability.
Which adjustment is appropriate when a company owns a building it uses but records no rent expense?
Answer: Impute a market rent expense
Imputing market rent normalizes earnings to reflect the economic cost of occupancy.
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