Certified Valuation Analyst CVA Financial Statement Analysis 3

Question 1

Which DuPont component isolates how efficiently a firm uses assets to generate revenue?

Accepted Answer

Asset turnover

Answer

Asset turnover (sales / total assets) measures revenue generated per dollar of assets.

Question 2

A quick ratio that is much lower than the current ratio indicates the company relies heavily on what asset?

Accepted Answer

Inventory

Answer

The quick ratio excludes inventory, so a large gap shows inventory dominates current assets.

Question 3

When computing free cash flow to the firm, why is interest expense added back (net of tax)?

Accepted Answer

FCFF measures cash available to all capital providers before financing

Answer

FCFF reflects cash before financing decisions, so after-tax interest is added back to remove its effect.

Question 4

Which trend in days sales outstanding (DSO) suggests deteriorating collections?

Accepted Answer

A rising DSO over several periods

Answer

An increasing DSO means receivables are collected more slowly, signaling weaker collections.

Question 5

In valuation-oriented analysis, what does EBITDA primarily attempt to approximate?

Accepted Answer

Operating cash flow before financing and capital structure

Answer

EBITDA proxies pre-financing operating cash generation by removing interest, taxes, and non-cash charges.

Certified Valuation Analyst Practice Test