QFC Financial Statement Analysis 3

Question 1

Which of the following best describes the common-size income statement approach?

Accepted Answer

Each line item is expressed as a percentage of net revenue

Answer

A vertical common-size income statement divides each line item by net revenue (or net sales), enabling comparisons across firms of different sizes.

Question 2

An increase in a company's days sales outstanding (DSO) from 30 to 50 days most likely indicates:

Accepted Answer

Slower collection of receivables or relaxed credit terms

Answer

Rising DSO means customers are taking longer to pay, pointing to slower collections or looser credit policies.

Question 3

Under US GAAP, research costs must be:

Accepted Answer

Expensed as incurred

Answer

US GAAP requires research costs to be expensed immediately; only certain software development costs may be capitalized after technological feasibility.

Question 4

A firm has total debt of $400M and equity of $600M. Its debt-to-equity ratio and financial leverage (equity multiplier) are, respectively:

Accepted Answer

0.67 and 1.67

Answer

D/E = 400/600 = 0.67; Equity Multiplier = Total Assets/Equity = (400+600)/600 = 1.67.

Question 5

When a lessee uses a finance lease instead of an operating lease, the primary financial statement effect in early years is:

Accepted Answer

Higher total expenses and lower net income

Answer

Finance leases front-load expense recognition (interest + depreciation > straight-line rent), leading to higher total expenses and lower early-year net income.

(QFC) Quantitative Finance Certification Practice Test

(QFC) Quantitative Finance Certification Practice Test

QFC Financial Statement Analysis 3