Certified Valuation Analyst CVA Financial Statement Analysis 2

Question 1

When normalizing earnings for a closely held company, which adjustment removes the effect of an owner paying themselves above-market compensation?

Accepted Answer

Adding back excess officer compensation to pre-tax earnings

Answer

Capitalizing all officer salaries

Answer

Removing depreciation expense

Answer

Deferring revenue to the next period

Question 2

A non-recurring lawsuit settlement expense appears in the income statement. In normalization, how should an analyst treat it?

Accepted Answer

Remove it as a non-recurring item

Answer

Amortize it over five years

Answer

Treat it as ongoing operating cost

Answer

Add it to cost of goods sold

Question 3

Which ratio best measures a company's ability to cover interest obligations from operating profit?

Accepted Answer

Times interest earned (EBIT / interest expense)

Answer

Current ratio

Answer

Inventory turnover

Answer

Gross margin

Question 4

An analyst restates LIFO inventory to FIFO for comparability. What account adjustment captures this difference?

Accepted Answer

The LIFO reserve

Answer

Goodwill

Answer

Deferred revenue

Answer

Treasury stock

Question 5

What does a steadily declining gross profit margin most likely signal in financial statement analysis?

Accepted Answer

Rising input costs or pricing pressure

Answer

Improved tax efficiency

Answer

Lower long-term debt

Answer

Higher dividend payout

Question 6

In a common-size income statement, each line item is expressed as a percentage of which figure?

Accepted Answer

Net sales (revenue)

Answer

Total assets

Answer

Net income

Answer

Total equity

Question 7

Which adjustment is appropriate when a company owns a building it uses but records no rent expense?

Accepted Answer

Impute a market rent expense

Answer

Add the building to inventory

Answer

Remove all depreciation

Answer

Capitalize the CEO salary