FA Financial Modeling and Valuation

Question 1

What is a three-statement financial model?

Accepted Answer

An integrated model linking the income statement, balance sheet, and cash flow statement

Answer

A model containing only income statement projections

Answer

A model used only for merger and acquisition analysis

Answer

A model that includes three years of historical data only

Question 2

In financial modeling, what is a 'plug' or 'balancing item'?

Accepted Answer

A line item used to make the balance sheet balance after projections are built

Answer

An error in the model that must be fixed

Answer

A hard-coded number that should never change

Answer

A macro that automates model updates

Question 3

Which valuation multiple is most commonly used for capital-intensive industries where depreciation varies significantly?

Accepted Answer

EV/EBITDA

Answer

P/E (Price-to-Earnings)

Answer

P/B (Price-to-Book)

Answer

P/S (Price-to-Sales)

Question 4

In a DCF model, what happens to the present value of cash flows when the discount rate increases?

Accepted Answer

Present values decrease

Answer

Present values increase

Answer

Present values remain unchanged

Answer

Present values become negative

Question 5

What is enterprise value (EV)?

Accepted Answer

The total value of a company including both equity and debt, minus cash

Answer

The market capitalization of a company's equity

Answer

The book value of total assets on the balance sheet

Answer

The net present value of all future dividends

Question 6

What is the primary use of a sensitivity table (data table) in financial modeling?

Accepted Answer

To show how outputs change across a range of two key input assumptions simultaneously

Answer

To display historical financial data from accounting systems

Answer

To calculate monthly depreciation schedules

Answer

To reconcile the balance sheet to audited financial statements