CFE Financial Analysis & Reporting 2

Question 1

A company reports a current ratio of 0.8. What does this most directly indicate about its short-term financial position?

Accepted Answer

Current liabilities exceed current assets

Answer

A current ratio below 1.0 means current liabilities exceed current assets, signaling potential liquidity risk.

Question 2

Under ASC 842, operating leases are reflected on the lessee's balance sheet as:

Accepted Answer

A right-of-use asset and a corresponding lease liability

Answer

ASC 842 requires lessees to recognize a right-of-use asset and lease liability for virtually all operating leases.

Question 3

Which financial metric best measures how efficiently a company converts its invested capital into profit?

Accepted Answer

Return on invested capital (ROIC)

Answer

ROIC measures net operating profit after tax divided by invested capital, directly gauging capital efficiency.

Question 4

A financial examiner notices that a company's days sales outstanding (DSO) increased from 32 to 67 days year-over-year. The most likely concern is:

Accepted Answer

Deteriorating accounts receivable collectability or aggressive revenue recognition

Answer

A sharp DSO increase suggests customers are paying more slowly or revenue was recognized prematurely, raising fraud and credit risk flags.

Question 5

In a common-size income statement, all line items are expressed as a percentage of:

Accepted Answer

Net revenues or net sales

Answer

Common-size income statements normalize each line item to net revenues, enabling cross-period and cross-company comparisons.

(CFE) Certified Financial Examiner Practice Test