Certified Valuation Analyst CVA Financial Statement Analysis 4

Question 1

An analyst compares a subject company's margins to industry medians. This technique is called what?

Accepted Answer

Benchmarking (comparative ratio analysis)

Answer

Comparing ratios to industry benchmarks identifies relative strengths and weaknesses.

Question 2

Which item on the statement of cash flows would an analyst scrutinize to detect aggressive revenue recognition?

Accepted Answer

Growing gap between net income and operating cash flow

Answer

When net income rises faster than operating cash flow, it can signal aggressive or non-cash revenue recognition.

Question 3

Return on equity can be inflated by which financing choice even if operating performance is unchanged?

Accepted Answer

Increasing financial leverage (more debt)

Answer

Higher leverage raises the equity multiplier, boosting ROE without improving operations.

Question 4

When normalizing the balance sheet, how should a non-operating asset like excess investment securities be treated?

Accepted Answer

Separated out as a non-operating asset

Answer

Non-operating assets are segregated so the operating value and excess assets can be valued separately.

Question 5

A high inventory turnover ratio relative to peers generally indicates what?

Accepted Answer

Efficient inventory management or strong sales

Answer

Higher turnover usually reflects efficient inventory use or robust demand.

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