CFC Financial Analysis and Valuation

Question 1

Which financial ratio measures a company's ability to meet short-term obligations using only its most liquid assets?

Accepted Answer

Quick (acid-test) ratio

Answer

The quick ratio excludes inventory and prepaid expenses from current assets, testing whether the most liquid assets cover current liabilities.

Question 2

Free cash flow to equity (FCFE) represents:

Accepted Answer

Cash available to equity shareholders after capital expenditures and debt repayments

Answer

FCFE is calculated as net income plus non-cash charges minus capital expenditures minus changes in working capital plus net borrowing.

Question 3

When a CFC uses discounted cash flow (DCF) analysis, the terminal value accounts for:

Accepted Answer

All cash flows beyond the explicit forecast period in perpetuity

Answer

Terminal value captures the present value of all cash flows beyond the explicit projection period, often representing the majority of a DCF valuation.

Question 4

The debt-to-equity ratio of 2.5 indicates that for every dollar of equity, the company carries:

Accepted Answer

$2.50 of debt

Answer

A debt-to-equity ratio of 2.5 means the company has $2.50 in debt for every $1.00 of equity, indicating significant financial leverage.

Question 5

EBITDA is commonly used as a proxy for operating cash flow. What does it add back to net income?

Accepted Answer

Interest, taxes, depreciation, and amortization

Answer

EBITDA starts with net income and adds back interest expense, income taxes, depreciation, and amortization to estimate core operating cash generation.

CFC - Certified Financial Consultant Practice Test

CFC - Certified Financial Consultant Practice Test

CFC Financial Analysis and Valuation