FIA Financial Data Analysis & Reporting 3 — Questions and Answers
Question 1: A company's days sales outstanding (DSO) increased from 30 to 50 days year-over-year. What does this most likely indicate?
- Customers are paying more quickly
- The company is collecting receivables more slowly (Correct answer)
- Inventory turnover has improved
- The company's credit terms have tightened
Correct answer: The company is collecting receivables more slowly
An increasing DSO means the company takes longer to collect cash from credit sales, which can signal credit quality issues or lenient collection practices.
Question 2: In regression analysis used for financial forecasting, what does R-squared measure?
- The slope of the regression line
- The proportion of variance in the dependent variable explained by the independent variable(s) (Correct answer)
- The number of outliers in the dataset
- The statistical significance of individual coefficients
Correct answer: The proportion of variance in the dependent variable explained by the independent variable(s)
R-squared (coefficient of determination) indicates how well the independent variables explain the variability of the dependent variable, ranging from 0 to 1.
Question 3: Which financial statement reconciles net income to cash flow from operations?
- Balance sheet
- Income statement
- Statement of cash flows (indirect method) (Correct answer)
- Statement of changes in equity
Correct answer: Statement of cash flows (indirect method)
The indirect method of the cash flow statement starts with net income and adjusts for non-cash items and working capital changes to arrive at operating cash flow.
Question 4: An analyst is comparing two datasets with very different scales. Which statistical measure is most useful for comparing their variability?
- Standard deviation
- Variance
- Coefficient of variation (Correct answer)
- Range
Correct answer: Coefficient of variation
The coefficient of variation (CV = standard deviation / mean) normalizes variability relative to the mean, enabling comparison across datasets with different scales.
Question 5: Which of the following is an example of off-balance-sheet financing that analysts must scrutinize?
- Issuing long-term bonds
- Operating lease obligations under old GAAP (Correct answer)
- Recording goodwill from an acquisition
- Paying a cash dividend
Correct answer: Operating lease obligations under old GAAP
Under older GAAP (pre-ASC 842), operating leases were not recorded on the balance sheet, understating a company's true liabilities and leverage.
Question 6: When performing trend analysis on a company's revenue, an analyst should be MOST alert to:
- Minor seasonal fluctuations that repeat consistently
- A sudden trend reversal that contradicts industry peers (Correct answer)
- Rounding differences in reported figures
- Changes in presentation currency between years
Correct answer: A sudden trend reversal that contradicts industry peers
A sudden trend reversal that peers do not share may signal company-specific issues such as loss of a major customer, accounting manipulation, or operational problems.
Question 7: In financial data reporting, a 'trailing twelve months' (TTM) figure is calculated by:
- Using only the most recent annual report
- Adding the last four quarterly results regardless of fiscal year boundaries (Correct answer)
- Averaging the last three annual periods
- Projecting the most recent quarter forward by four
Correct answer: Adding the last four quarterly results regardless of fiscal year boundaries
TTM aggregates the four most recent quarterly periods, providing a more current view of performance than a fiscal year that may have ended months ago.
FIA Financial Data Analysis & Reporting 3
A company's days sales outstanding (DSO) increased from 30 to 50 days year-over-year.
What does this most likely indicate?