Practice Test GeeksFA - Financial Analyst Practice Test
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FA Financial Modeling & Valuation Flashcards

6 cards from real FA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 6 FA Financial Modeling & Valuation flashcards as text

  1. Which formula correctly calculates Free Cash Flow to the Firm (FCFF)?

    Answer: EBIT × (1 - Tax Rate) + Depreciation - CapEx - Change in Working Capital

    FCFF starts with after-tax EBIT, adds back non-cash charges, then subtracts capital expenditures and increases in net working capital.

  2. In precedent transaction analysis, why are deal multiples typically higher than trading comps multiples?

    Answer: Acquirers pay a control premium over the market price to gain ownership

    A control premium compensates the target's shareholders for giving up control, so acquisition multiples systematically exceed standalone trading multiples.

  3. Which financial statement best shows whether a profitable company is actually generating cash?

    Answer: Cash flow statement

    The cash flow statement reconciles net income to actual cash generated, revealing the impact of non-cash items and working capital changes.

  4. What is the purpose of normalizing earnings when valuing a company?

    Answer: To remove one-time or non-recurring items so the earnings reflect sustainable ongoing performance

    Normalized earnings strip out extraordinary items, restructuring charges, and other non-recurring events to reveal the company's true run-rate profitability.

  5. In scenario analysis within a financial model, what does a 'base case' represent?

    Answer: The most likely set of assumptions reflecting management's current plan

    The base case reflects realistic, most-likely assumptions and serves as the anchor against which upside and downside scenarios are compared.

  6. What does a high Debt/EBITDA ratio generally signal about a company?

    Answer: The company carries significant leverage relative to its operating earnings, increasing credit risk

    A high Debt/EBITDA ratio means the company would need many years of operating earnings to repay its debt, which lenders view as elevated credit risk.