CBA Financial Analysis & Business Valuation

Question 1

Which financial statement best indicates a company's profitability over a period?

Accepted Answer

Income Statement

Answer

The income statement shows revenues and expenses, helping assess whether a company made a profit or loss over a specific period.

Question 2

What does the current ratio measure in financial analysis?

Accepted Answer

Liquidity

Answer

The current ratio assesses a company’s ability to meet short-term obligations using its current assets.

Question 3

Which valuation method uses projected future cash flows to estimate a company’s worth?

Accepted Answer

Discounted Cash Flow

Answer

Discounted Cash Flow (DCF) analysis estimates business value by forecasting future cash flows and discounting them to present value.

Question 4

Why is EBITDA often used in business valuation?

Accepted Answer

It isolates core profitability

Answer

EBITDA reflects earnings before interest, taxes, depreciation, and amortization, providing a clearer picture of operational profitability.

Question 5

What does a high debt-to-equity ratio typically indicate?

Accepted Answer

High use of leverage

Answer

A high debt-to-equity ratio means a company is heavily financed by debt, which could increase financial risk.

(CBA) Certified Business Advisor Practice Test