FA Financial Reporting and Analysis 2

Question 1

What does EBITDA stand for?

Accepted Answer

Earnings Before Interest, Taxes, Depreciation, and Amortization

Answer

EBITDA measures a company's core operating profitability by excluding interest, taxes, depreciation, and amortization.

Question 2

Which financial ratio indicates what percentage of each dollar of sales remains after all expenses are paid?

Accepted Answer

Net Profit Margin

Answer

Net profit margin (net income ÷ net sales) shows how much of each revenue dollar converts to profit after all expenses including taxes.

Question 3

In horizontal analysis, what is being compared?

Accepted Answer

The same company's financial data across multiple periods

Answer

Horizontal analysis compares a company's financial data over two or more periods to identify trends and growth rates.

Question 4

Which section of the cash flow statement includes payments for property, plant, and equipment?

Accepted Answer

Investing Activities

Answer

Capital expenditures for PP&E are reported in the investing activities section of the cash flow statement.

Question 5

A debt-to-equity ratio greater than 1 indicates that a company:

Accepted Answer

Has more debt than equity financing

Answer

A D/E ratio above 1 means total liabilities exceed shareholders' equity, indicating the company relies more on debt than equity for financing.

FA - Finance Analyst Practice Test