FA FA Financial Modeling & Valuation

Question 1

Which valuation method estimates a company's value by discounting its projected future free cash flows to the present?

Accepted Answer

Discounted Cash Flow (DCF)

Answer

DCF analysis values a company by discounting its expected future free cash flows back to present value using an appropriate discount rate.

Question 2

In a three-statement financial model, which statements are linked together?

Accepted Answer

Income statement, balance sheet, and cash flow statement

Answer

A three-statement model integrates the income statement, balance sheet, and cash flow statement so changes in one automatically flow through the others.

Question 3

What does EBITDA stand for in financial analysis?

Accepted Answer

Earnings Before Interest, Taxes, Depreciation, and Amortization

Answer

EBITDA measures a company's core operational profitability by removing non-cash charges and financing costs from net income.

Question 4

Which financial modeling technique tests how changes in key assumptions affect the output of a model?

Accepted Answer

Sensitivity analysis

Answer

Sensitivity analysis (also called what-if analysis) shows how the model's output changes as individual input variables are adjusted.

Question 5

In comparable company analysis (comps), which multiple is most commonly used to value capital-intensive businesses?

Accepted Answer

EV/EBITDA

Answer

EV/EBITDA is preferred for capital-intensive firms because it is capital-structure neutral and removes the distortion of varying depreciation policies.

FA - Financial Analyst Practice Test

FA - Financial Analyst Practice Test

FA FA Financial Modeling & Valuation