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Basic Financial Forecasting MCQ

1.
Which of the following would most likely be included on a summary page for Income Statement data?

Total Assets, Total Liabilities, Total Equity

Net Income, Total Sales, Total Operating Expense

Cash Balance, Cash Inflows, Cash Outflows

Retained Earnings and Cash

Answer

Correct Answer: Total Assets, Total Liabilities, Total Equity

Note: This Question is unanswered, help us to find answer for this one

2.
Which of the following decisions could be made by examining the Balance Sheet?

To increase production

To hire another key executive

To reduce payroll by 20%

To collect more aggressively on a growing receivables balance

Answer

Correct Answer: To collect more aggressively on a growing receivables balance

Note: This Question is unanswered, help us to find answer for this one

3.
Which of the following would one expect to be the highest expense?

Liability insurance

Salaries

Benefits

Office supplies

Answer

Correct Answer: Salaries

Note: This Question is unanswered, help us to find answer for this one

4.
Another name for the Balance Sheet is ____________________.

Statement of Financial Position

Cash Flow Statement

Statement of Retained Earnings

Statement of Accounts

Answer

Correct Answer: Statement of Financial Position

Note: This Question is unanswered, help us to find answer for this one

5.
Valuation is a ______________________.

result of Net Income, Sales, and Cash Flow

result of Accounts Receivable

result of Accounts Payable

result of Equity and Retained Earnings

Answer

Correct Answer: result of Net Income, Sales, and Cash Flow

Note: This Question is unanswered, help us to find answer for this one

6.
Why would a company be conservative when projecting revenues?

Being conservative is better than being overly optimistic.

The company wants to show the highest possible revenue.

Being conservative reduces the firm's tax liability.

Being conservative is required by law.

Answer

Correct Answer: Being conservative is better than being overly optimistic.

Note: This Question is unanswered, help us to find answer for this one

7.
Valuation will typically trend _______________.

in a straight line; valuation does not change

upwards over time as the company increases sales

downwards over time as the company increases sales

upwards over time as the company decreases sales

Answer

Correct Answer: upwards over time as the company increases sales

Note: This Question is unanswered, help us to find answer for this one

8.
Valuation can be calculated by ____________________.

discounting net income for the next several years

applying a fixed percentage to tax liability

examining Rent Expense

Total Retained Earnings

Answer

Correct Answer: discounting net income for the next several years

Note: This Question is unanswered, help us to find answer for this one

9.
A company has a pre-money valuation of $1,000,000. An investor will invest $100,000. The post-money valuation is _________________.

$900,000

$1,000,000

$1,100,000

$2,200,000

Answer

Correct Answer: $1,100,000

Note: This Question is unanswered, help us to find answer for this one

10.
How is Cash at the beginning of the period determined?

It depends on the company's AR level.

It is determined by looking at revenues.

It is determined through a complex calculation involving interest.

It is taken from the prior period's ending cash balance.

Answer

Correct Answer: It is taken from the prior period's ending cash balance.

Note: This Question is unanswered, help us to find answer for this one

11.
In a variance/sensitivity analysis, a company will typically calculate _________________.

only a worst case scenario

only a best case scenario

both best case and worst case scenarios of altered revenues and expenses

None of the above; most companies won't do a variance/sensitivity analysis.

Answer

Correct Answer: both best case and worst case scenarios of altered revenues and expenses

Note: This Question is unanswered, help us to find answer for this one

12.
Which of the following would be a logical arrangement for showing revenue?

Summary totals

Detailed by revenue stream

Detailed by sales person

Summarized by sales person

Answer

Correct Answer: Detailed by revenue stream

Note: This Question is unanswered, help us to find answer for this one

13.
Retained Earnings reflect ____________________.

the cumulative Net Income for a company from inception until its last reporting year

Net Income for the current year

Change in Assets

Change in Liabilities

Answer

Correct Answer: the cumulative Net Income for a company from inception until its last reporting year

Note: This Question is unanswered, help us to find answer for this one

14.
Which of the following would most likely NOT be included on summary financials?

Net Income

Total Assets

Accounts Payable

Sales

Answer

Correct Answer: Accounts Payable

Note: This Question is unanswered, help us to find answer for this one

15.
Which of the following is the accepted format for a forecasted Cash Flow Statement?

Net Income, Operating Activities, Financing Activities, Investing Activities

Revenue, COGS, Operating Expenses

Taxes, COGS, Revenue, Operating Expenses

Assets, Liabilities, Equity

Answer

Correct Answer: Net Income, Operating Activities, Financing Activities, Investing Activities

Note: This Question is unanswered, help us to find answer for this one

16.
The basic formula for a Balance Sheet is __________________.

Cash = Liabilities

Assets = Liabilities + Equity

Net Income = Assets - Liabilities

Retained Earnings = Assets + Liabilities

Answer

Correct Answer: Assets = Liabilities + Equity

Note: This Question is unanswered, help us to find answer for this one

17.
Companies calculate their valuation for the purpose of _____________________.

determining their Net Income

seeing if they can get credit from the bank

determining their tax liability

using the outcome as a basis for working with investors and deciding how much equity an investment is worth

Answer

Correct Answer: using the outcome as a basis for working with investors and deciding how much equity an investment is worth

Note: This Question is unanswered, help us to find answer for this one

18.
Naming assumption cells is helpful because ____________________.

it allows for easier creation and tracking of formulas built into the model

formulas will not work unless they are named

it prevents subsequent users from editing the cells

management cannot decipher any hidden references

Answer

Correct Answer: it allows for easier creation and tracking of formulas built into the model

Note: This Question is unanswered, help us to find answer for this one

19.
What purpose does a central assumptions input tab serve in an Excel-based forecast?

It adds a level of complexity.

It helps create an easy-to-use spreadsheet in which all inputs are located in one place.

There is no particular purpose for it; it is simply required by law.

There is no particular purpose for it; it is simply required by the SEC.

Answer

Correct Answer: It helps create an easy-to-use spreadsheet in which all inputs are located in one place.

Note: This Question is unanswered, help us to find answer for this one

20.
Overall, what is the purpose of a Cash Flow Statement?

It shows how the company received and spent cash each period.

It is used to determine whether a company should pay dividends.

It shows Net Income.

It determines tax liability.

Answer

Correct Answer: It shows how the company received and spent cash each period.

Note: This Question is unanswered, help us to find answer for this one

21.
For most new ventures in the process of creating a forecast, the expense that warrants the most detailed analysis and input is _____________.

wages

rent

telephone and utilities

benefits

Answer

Correct Answer: wages

Note: This Question is unanswered, help us to find answer for this one

22.
A normal revenue model will _______________.

decline in revenue due to restructuring

decline in revenue as the initial buzz wears off

have straight line revenues

increase revenues over time

Answer

Correct Answer: increase revenues over time

Note: This Question is unanswered, help us to find answer for this one

23.
Would it be better to create detailed input that individually forecasts expenses or to create a simple, one-line input for Operating Expenses?

Simple input: it will save the end user a lot of time.

Simple input: it's not worth figuring out the specifics of Operating Expenses.

Detailed input: each expense grows based on different variables.

Detailed input: the model looks more impressive if there are more line items.

Answer

Correct Answer: Detailed input: each expense grows based on different variables.

Note: This Question is unanswered, help us to find answer for this one

24.
What is the purpose of a summary page?

It is required by the IRS.

It saves the financial model creator from having to delve into details.

It makes the financial model creator look smart.

It gives a quick overview of the forecasted outcomes for various financials.

Answer

Correct Answer: It gives a quick overview of the forecasted outcomes for various financials.

Note: This Question is unanswered, help us to find answer for this one

25.
Which of the following is the accepted format for a forecasted P&L?

Expenses first, then Revenue

Revenue, COGS, Operating Expenses

Taxes, COGS, Revenue, Operating Expenses

Assets, Liabilities, Equity

Answer

Correct Answer: Revenue, COGS, Operating Expenses

Note: This Question is unanswered, help us to find answer for this one

26.
A simple method of calculating variance is to _________________.

apply a percentage increase/decrease to each line item on the P&L

build an entirely new model for each

use current interest rates

look at the company's FICA score

Answer

Correct Answer: apply a percentage increase/decrease to each line item on the P&L

Note: This Question is unanswered, help us to find answer for this one

27.
The term "revenue driver" refers to ____________________.

the per-unit sales price

any factor that drives revenue, such as site impressions

the total revenue by product

the total revenue

Answer

Correct Answer: any factor that drives revenue, such as site impressions

Note: This Question is unanswered, help us to find answer for this one

28.
In which of the following sections would a startup company record an investment by a venture capital firm?

Cash from Investing

Net Income

Cash from Operations

Cash from Financing

Answer

Correct Answer: Cash from Financing

Note: This Question is unanswered, help us to find answer for this one

29.
Why would an investor be interested in a company's pre-money valuation?

The investor is required by law to ask for the pre-money valuation.

Knowing the valuation allows the investor to secretly calculate how much he can expect in return.

Knowing the valuation gives the investor the ability to calculate net income.

Answer

Correct Answer: Knowing the valuation allows the investor to secretly calculate how much he can expect in return.
Knowing the valuation allows the investor to secretly calculate how much he can expect in return.

Note: This question has more than 1 correct answers

Note: This Question is unanswered, help us to find answer for this one

30.
In general, a financial plan can be defined as _____________________.

a plan for spending, saving, and generating revenue

a 10-year strategy plan

the prior year's financial reports

a plan to be used only by the Board of Directors

Answer

Correct Answer: a plan for spending, saving, and generating revenue

Note: This Question is unanswered, help us to find answer for this one

31.
The majority ownership of a private company is typically held by __________________.

private bankers

venture capital firms

employees

company officers

Answer

Correct Answer: company officers

Note: This Question is unanswered, help us to find answer for this one

32.
Ad Revenue, which is revenue generated by placing advertisements of other companies on your site, can be modeled by _________________.

assuming a fixed amount each year and applying it to all years

assuming that Google's ad rates apply

figuring the average revenue per ad multiplied by the expected number of advertisement spots in a given period

figuring the average sales revenue on other products

Answer

Correct Answer: figuring the average revenue per ad multiplied by the expected number of advertisement spots in a given period

Note: This Question is unanswered, help us to find answer for this one

33.
To be as specific as possible, a revenue forecast should ______________.

be summarized by year

be summarized by quarter

be detailed month by month

show a total for five years

Answer

Correct Answer: be detailed month by month

Note: This Question is unanswered, help us to find answer for this one

34.
Which of the following decisions would best be made by looking at cash flow?

Decisions about inventory management

Decisions about tax planning

The decision to spend less on capital assets and pay down payables in the next period

The decision to increase production

Answer

Correct Answer: The decision to spend less on capital assets and pay down payables in the next period

Note: This Question is unanswered, help us to find answer for this one

35.
The most logical formatting convention for assumptions would be ___________________.

to use a 10-color coding scheme

to spread assumptions throughout the entire model

to outline and use red text in all input cells, and to add a note at the top of the assumptions stating that only red-text cells are to be changed, with uniform formatting and assumptions placement

to use no particular formatting, but to make the assumptions simple with black text and no highlighting

Answer

Correct Answer: to outline and use red text in all input cells, and to add a note at the top of the assumptions stating that only red-text cells are to be changed, with uniform formatting and assumptions placement

Note: This Question is unanswered, help us to find answer for this one

36.
Why is it important to create assumptions for all possible changing variables?

It's not important; there is no real value in doing so.

It makes the model overly complex and difficult to use.

It allows the user to avoid paying taxes.

It makes future updates to the model easier because the user does not need to search for numbers embedded in formulas in the financial statements.

Answer

Correct Answer: It makes future updates to the model easier because the user does not need to search for numbers embedded in formulas in the financial statements.

Note: This Question is unanswered, help us to find answer for this one

37.
Which of the following would be the most useful forecasting interval?

Monthly

Quarterly

Yearly

Weekly

Answer

Correct Answer: Monthly

Note: This Question is unanswered, help us to find answer for this one

38.
Which of the following is the accepted format for a forecasted Balance Sheet?

Expenses first, then Revenue

Revenue, COGS, Operating Expenses

Taxes, COGS, Revenue, Operating Expenses

Assets, Liabilities, Equity

Answer

Correct Answer: Assets, Liabilities, Equity

Note: This Question is unanswered, help us to find answer for this one

39.
Which of the following decisions could be made by looking at the Balance Sheet?

To move offices

To invest excess cash into higher-yield investments

To reduce employee benefits

To outsource payroll functions

Answer

Correct Answer: To invest excess cash into higher-yield investments

Note: This Question is unanswered, help us to find answer for this one

40.
In which of the following sections would Change in Accounts Receivable be recorded?

Cash from Investing

Net Income

Cash from Operations

Cash from Financing

Answer

Correct Answer: Cash from Operations

Note: This Question is unanswered, help us to find answer for this one

41.
Another way to express the Balance Sheet formula is ________________.

Cash = Liabilities

Equity = Assets - Liabilities

Net Income = Assets - Liabilities

Retained Earnings = Assets + Liabilities

Answer

Correct Answer: Equity = Assets - Liabilities

Note: This Question is unanswered, help us to find answer for this one

42.
In what way are the Income Statement and the Balance Sheet linked in a dynamic forecast?

Change in Accounts Receivable is determined on the Income Statement.

Ending cash balance is brought from the Income Statement to the Balance Sheet.

There is no relationship between the two.

Net income is carried over to the Equity section.

Answer

Correct Answer: Net income is carried over to the Equity section.

Note: This Question is unanswered, help us to find answer for this one

43.
Capitalization is defined as ______________________.

the debt structure of a company

the capital structure of a company

current assets

the annual net income

Answer

Correct Answer: the capital structure of a company

Note: This Question is unanswered, help us to find answer for this one

44.
The term "burn rate" refers to ______________.

the total operating expenses

the amount of cash a company spends on average in a given period

the total fixed asset expenditures

revenue growth

Answer

Correct Answer: the amount of cash a company spends on average in a given period

Note: This Question is unanswered, help us to find answer for this one

45.
In which of the following ways would typical Rent Expense be modeled?

Consistent over the next five years

Based on average rent in major metropolitan areas

Always assuming a 10% growth per year

Related to both the number of employees and natural increases in rent

Answer

Correct Answer: Related to both the number of employees and natural increases in rent

Note: This Question is unanswered, help us to find answer for this one

46.
How is income tax forecasted?

By applying the prevailing corporate tax rate to any income for the period

By showing it escalating over time

By assuming zero unless profits exceed $1 million

Answer

Correct Answer: By applying the prevailing corporate tax rate to any income for the period

Note: This Question is unanswered, help us to find answer for this one

47.
In what way are the Cash Flow Statement and the Balance Sheet linked in a dynamic forecast?

They are not interrelated.

Cash from the Cash Flow Statement is carried over to the Balance Sheet cash line.

Equity from the Balance Sheet is transferred to the Cash Flow Statement.

Accounts Receivable is transferred from the Cash Flow Statement to the Balance Sheet.

Answer

Correct Answer: Cash from the Cash Flow Statement is carried over to the Balance Sheet cash line.

Note: This Question is unanswered, help us to find answer for this one

48.
Operating expenses should ____________________.

be summarized, showing one lump sum per period

be organized by department

be detailed, showing each line item that the actual P&L will have

not be included

Answer

Correct Answer: be detailed, showing each line item that the actual P&L will have

Note: This Question is unanswered, help us to find answer for this one

49.
Which of the following would most likely be included on a summary page for Balance Sheet data?

Total Assets, Total Liabilities, Total Equity

Net Income, Total Sales, Total Operating Expense

Cash Balance, Cash Inflows, Cash Outflows

Retained Earnings and Cash

Answer

Correct Answer: Net Income, Total Sales, Total Operating Expense

Note: This Question is unanswered, help us to find answer for this one

50.
Should a summary include metrics such as Gross Margin %?

Yes, they are good high-level indicators.

Yes, it is required by law.

No, they are excessive information.

No, they are too complex for a summary.

Answer

Correct Answer: Yes, they are good high-level indicators.

Note: This Question is unanswered, help us to find answer for this one

51.
The purpose of a worst case analysis is to _____________________.

show the best possible result

advise the reader not to invest

show that management is competent

show what the results would be if things do not work out as forecasted

Answer

Correct Answer: show what the results would be if things do not work out as forecasted

Note: This Question is unanswered, help us to find answer for this one

52.
One method of calculating the valuation of a company is ________________.

Accounts Payable change

Discounted Cash Flows

Retained Earnings Growth

Tax Liability discounted

Answer

Correct Answer: Discounted Cash Flows

Note: This Question is unanswered, help us to find answer for this one

53.
Net Income on the Balance Sheet reflects _______________.

Net Income for the current month

year-to-date Net Income

Change in Assets from inception

Tax liability

Answer

Correct Answer: year-to-date Net Income

Note: This Question is unanswered, help us to find answer for this one

54.
A capitalization summary would show ______________________.

Net Income, Cash, and Retained Earnings

Operating Expenses and Tax Liability

Change in Accounts Receivable

Valuation, Investment, and Ownership %

Answer

Correct Answer: Valuation, Investment, and Ownership %

Note: This Question is unanswered, help us to find answer for this one

55.
To calculate a worst case scenario, a company would and .

increase revenue streams, decrease operating expenses

increase operating expenses, increase revenues

decrease revenues, increase operating expenses

show no change to revenue, show change only to operating expenses

Answer

Correct Answer: decrease revenues, increase operating expenses

Note: This Question is unanswered, help us to find answer for this one

56.
Why is Change in Accounts Payable added back to Net Income?

There is no reason to do so.

An increase in AP reflects the fact that the company did not spend cash on paying its bills.

It is required by the SEC.

It is required by IRS tax law.

Answer

Correct Answer: An increase in AP reflects the fact that the company did not spend cash on paying its bills.

Note: This Question is unanswered, help us to find answer for this one

57.
The Net Income on the Cash Flow Forecast comes from the __________________.

Balance Sheet

Statement of Retained Earnings

Forecasted Profit & Loss Statement

Variance Analysis

Answer

Correct Answer: Forecasted Profit & Loss Statement

Note: This Question is unanswered, help us to find answer for this one

58.
What does an increasing trend in Accounts Payable indicate for a company?

It indicates nothing in particular.

The company is making better use of its cash and is not paying bills as quickly.

Cash is being mismanaged.

Net Income is increasing.

Answer

Correct Answer: The company is making better use of its cash and is not paying bills as quickly.

Note: This Question is unanswered, help us to find answer for this one

59.
Which of the following parties should be kept in mind when creating a financial forecast?

The government

The end user

The financial model builder

The Board of Directors

Answer

Correct Answer: The end user

Note: This Question is unanswered, help us to find answer for this one

60.
Which of the following would NOT be included on a summary page?

Cash Balance

Net Income

Payroll Expense

Total Equity

Answer

Correct Answer: Payroll Expense

Note: This Question is unanswered, help us to find answer for this one

61.
Is income tax forecasted?

Yes, usually

Never

Not unless required by the country law

Yes, but only if the company is forecasted to earn over $1 million

Answer

Correct Answer: Yes, usually

Note: This Question is unanswered, help us to find answer for this one

62.
Revenues on the Profit & Loss should be changed ___________________.

by inputting them directly into the cells

through the accounting system

by showing change in cash flow

by changing assumptions on the assumptions page

Answer

Correct Answer: by changing assumptions on the assumptions page

Note: This Question is unanswered, help us to find answer for this one

63.
For a startup company looking to gain investor interest, which of the following seems like a reasonable amount of time to forecast ahead?

6 months

1 year

5 years

20 years

Answer

Correct Answer: 5 years

Note: This Question is unanswered, help us to find answer for this one

64.
Which of the following represents three possible revenue streams for an online venture?

Product Sales, In-Store Sales, Bulk Purchases

Ad Revenue, Affiliate Revenue, Product Sales

In-Store Sales, Ad Revenue, Product Sales

In-Store Sales, Affiliate Revenue, Product Sales

Answer

Correct Answer: Ad Revenue, Affiliate Revenue, Product Sales

Note: This Question is unanswered, help us to find answer for this one

65.
Why is it reasonable for a startup company to forecast a Net Loss for several years?

A company can never make money in its first years.

It reduces tax liability in future years.

As the company launches and grows, expenses will often exceed any revenue-generating abilities; hence, the expected payoff will not come until future years.

It's not reasonable and should not be done.

Answer

Correct Answer: As the company launches and grows, expenses will often exceed any revenue-generating abilities; hence, the expected payoff will not come until future years.

Note: This Question is unanswered, help us to find answer for this one

66.
Why might someone forecast future years as one annual number?

The forecaster is lazy.

It is the best method for forecasting future years.

It saves management time and energy.

Because it is difficult to predict what will happen, applying a growth percentage to the year is the most reasonable assumption.

Answer

Correct Answer: Because it is difficult to predict what will happen, applying a growth percentage to the year is the most reasonable assumption.

Note: This Question is unanswered, help us to find answer for this one

67.
Depreciation on the Balance Sheet reflects ___________________.

the current period depreciation

Tax Liability

Total Assets

cumulative depreciation on fixed assets

Answer

Correct Answer: cumulative depreciation on fixed assets

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68.
Why would a company perform a variance/sensitivity analysis?

It is a required financial statement.

Auditors will ask for it.

Shareholders require the document.

To see how the forecast model changes based on changing dynamic inputs

Answer

Correct Answer: To see how the forecast model changes based on changing dynamic inputs

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69.
An operating budget in a corporate setting is usually prepared ________________.

for the following fiscal year

for the next 5 years

one month at a time

None of the above; an operating budget is not typically created in a corporate setting.

Answer

Correct Answer: for the following fiscal year

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70.
Which of the following is NOT an operating expense?

Rent

Accounts Payable

Insurance

Bank fees

Answer

Correct Answer: Accounts Payable

Note: This Question is unanswered, help us to find answer for this one

71.
The primary financial statements that are forecast are _________________.

income statement only

retained earnings and cash flow

balance sheet and trial balance

income statement, balance sheet, and cash flow

Answer

Correct Answer: income statement, balance sheet, and cash flow

Note: This Question is unanswered, help us to find answer for this one

72.
Why does a Balance Sheet balance (assets = liabilities + equity)?

It is required by law.

Companies force it to balance.

Accounting is a double-entry system of equal debits and credits.

Auditors make adjustments to make it balance.

Answer

Correct Answer: Accounting is a double-entry system of equal debits and credits.

Note: This Question is unanswered, help us to find answer for this one

73.
A company has a post-money valuation of $500,000. The last investor put in $100,000. The pre-money valuation before the investor came in was _________________.

$400,000

$600,000

$1,000,000

$100,000

Answer

Correct Answer: $400,000

Note: This Question is unanswered, help us to find answer for this one

74. Before they are updated, financial forecasts are typically used for:

5 year's time

a month's time

(None of these)

a year's time

Answer

Correct Answer: a month's time

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75. True or False? Prediction markets are informative markets that are created for the purpose of making market predictions.

False

True

Answer

Correct Answer: False

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76. The Percent of Sales Method of financial forecasting will help to identify:

Relationship changes between assets and liabilities

Changes to earnings

The rationale behind sales increases

Financing needs

Answer

Correct Answer: Financing needs

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77. Which of the following are important characteristics when identifying peer companies to use in firm valuation?

Cash Flow

Company Size

Growth Rate

All

Answer

Correct Answer: Company Size

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78. The Black-Scholes model calculates the price of a:

Bond Price

European put and call options

American put and call option

Share Price

Answer

Correct Answer: European put and call options

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79. True or False? Bayes theorem does not use balance sheets to make predictions.

False

True

Answer

Correct Answer: False

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80. How does market research differ from the delphi method?

both are similar but the delphi method is a newer name

both take the opinions of experts but the delphi method takes into account their previous forecasting results

one takes the opinion of non-experts while the other takes only the opinion of experts

(None of these)

Answer

Correct Answer: one takes the opinion of non-experts while the other takes only the opinion of experts

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81. What is an advantage of the EV / EBITDA multiple?

It is unaffected by depreciation policy

It reports variations in capital expenditures and depreciation

Ignores value created through tax management

Answer

Correct Answer: It is unaffected by depreciation policy

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82. Companies with higher PEG ratios typically:

(None of these)

underperform companies with lower PEG ratios

have no correlation with companies who have lower PEG ratios

outperfom companies with lower PEG ratios

Answer

Correct Answer: underperform companies with lower PEG ratios

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83. If a company has a very high forward PE ratio, what do you expect the share price to do in the future?

Go up

Go down

stay the same

Answer

Correct Answer: Go down

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84. If the yield to maturity > current yield > coupon yield, the bond is sold at a ______?

discount

par

premium

Answer

Correct Answer: discount

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85. On the pro forma balance sheet, which of the following is normally the "plug" number inserted to "balance" the balance sheet?

Total Assets

Long-term Debt

Additional Funds Needed

Changes in Retained Earnings

Answer

Correct Answer: Additional Funds Needed

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86. Companies with lower PEG ratios typically:

there is no correlation between PEG and performance

outperfom companies with higher PEG ratios

(None of these)

underperform companies with higher PEG ratios

Answer

Correct Answer: outperfom companies with higher PEG ratios

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87. What does the x-axis of the security market line measure?

risk

expected return

slope

Answer

Correct Answer: risk

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88. True or False? A black swan is an example of an internality.

True

False

Answer

Correct Answer: False

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89. The indicator approach is a type of:

(None of these)

linear model

qualitative model

quantitative model

Answer

Correct Answer: quantitative model

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90. If a company has a low PE ratio and is expected to maintain profit, what do you expect the share price to do in the future?

Go down

Go up

stay the same

Answer

Correct Answer: Go up

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91. The most encompassing means of financial forecasting is:

Through the use of securities analyst's forecasts for the firm

Through the use of Pro Forma Financial Statements

Done using a long-term time horizon

Done using a short-term time horizon

Answer

Correct Answer: Through the use of Pro Forma Financial Statements

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92. Which budget is prepared to determine how much external financing will be needed to support estimated sales?

Balance Sheet Budget

Income Statement Budget

Cash Budget

Shareholder's Equity Budget

Answer

Correct Answer: Cash Budget

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93. True or False? Quantitative models typically use experts opinions to form future trends.

True

False

Answer

Correct Answer: False

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94. Which of the following is not included under the qualitative forecasting method?

Market Research

Moving Average Methods

Delphi Method

Executive Opinions

Answer

Correct Answer: Moving Average Methods

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95. Which of the following is not included under the quantitative forecasting method?

Trend Analysis

Naive Method

Delphi Method

Moving Average

Answer

Correct Answer: Delphi Method

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96. The Delphi method is a type of:

linear model

(None of these)

quantitative model

qualitative model

Answer

Correct Answer: qualitative model

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97. What is an example of qualitative forecasting technique?

Last Period Demand

Simple Exponential Smoothing

Delphi Method

Seasonal Indexes

Answer

Correct Answer: Delphi Method

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98. Which of the following items is NOT likely found on a capital budget?

Replacement Equipment

Exisiting Inventory

New Equipment

Research and Development

Answer

Correct Answer: Exisiting Inventory

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99. True or False? Black swan events are typically included in financial forecasts.

False

True

Answer

Correct Answer: False

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100. The time series method:

most commonly used

gives less importance to extreme data points

takes into account several methods using past and current data

(All of these)

Answer

Correct Answer: (All of these)

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101. Which of the following is an example of financial forecasting?

PE ratio

Forward PE ratio

Tailing PE ratio

Market capitalization

Answer

Correct Answer: Forward PE ratio

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102. Which of the following pro forma statements is likely to be calculated first while forecasting financials?

Statement of Retained Earnings

Statement of Cash Flow

Income Statement

Balance Sheet

Answer

Correct Answer: Income Statement

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103. A company’s Sustainable Rate of Growth (SRG) is determined by which of the following:

SRG = Common Equity/Assets

SRG = Net Income/Common Equity

SRG = Sales/Assets

SRG = ROE*(1 - Dividend Payout Ratio)

Answer

Correct Answer: SRG = ROE*(1 - Dividend Payout Ratio)

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104. True or False? The problem with Monte Carlo analysis is that you can only run one trial.

False

True

Answer

Correct Answer: False

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105. Which Method uses historical data as the basis of estimating future outcomes/information

Judgmental Methods

Artificial Intelligence Methods

Time Series

Econometric Forecasting Methods

Answer

Correct Answer: Time Series

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106. Which equation is best for forecasting future sales?

Forecasted Sales = Current Sales(1 + Growth Rate)

Forecasted Sales = Current Sales(1 - Growth Rate)

Forecasted Sales = Current Sales + (1 + Growth Rate)

Forecasted Sales = Current Sales(1 + Growth Rate)^2

Answer

Correct Answer: Forecasted Sales = Current Sales(1 + Growth Rate)

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107. True or False? The Bayesian Probablity method is used often for financial forecasting.

True

False

Answer

Correct Answer: True

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108. Which of the following capital budgeting techniques calculates the length of time required to recover the initial investment for a project?

Payback Method

Simple Rate of Return Method

Discounted Cash Flow Method

Internal Rate of Return Method

Answer

Correct Answer: Payback Method

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109. Which of the following balance sheet items is NOT likely to vary directly with changes in revenue?

Accounts Receivable

Accounts Payable

Inventory

Long-term Debt

Answer

Correct Answer: Long-term Debt

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110. What is the formula for compound interest?

(1+i)^t

(1+ it)

(1+it) / (t)

(1+i) / (t)

Answer

Correct Answer: (1+i)^t

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111. True or False? Verification is the process of comparing actual results and predicted results.

True

False

Answer

Correct Answer: True

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112. A security that has a beta of less than 1 has __________?

higher volatility than the market

lower volatility than the market

Answer

Correct Answer: lower volatility than the market

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113. True or False? Financial forecasting can always predict future events.

False

True

Answer

Correct Answer: False

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114. True or False? A Monte Carlo distribution could be a bell curve.

True

False

Answer

Correct Answer: True

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115. Financial forecasting is used for:

private companies

public companies

countries

(All of these)

Answer

Correct Answer: (All of these)

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116. True of False? Forecasting future costs can be estimated by using historical data.

False

True

Answer

Correct Answer: True

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117. True or False? A sensitivity analysis is changing a value or an original assumption to see what effect it has on the overall model.

False

True

Answer

Correct Answer: True

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118. Which of the following could be used in financial forecasts?

Historical data of earnings

Information on balance sheets

(All of these)

financial models

Answer

Correct Answer: (All of these)

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119. What is financial forecasting?

Estimation of a company's future financial situation

Determination of a company's current financial situation

(None of these)

Answer

Correct Answer: Estimation of a company's future financial situation

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120. What does EBIT stand for?

Earnings before Interest and Tax

Earnings before Interest and Taxable Income

Earnings before Income and Tax

Answer

Correct Answer: Earnings before Interest and Tax

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121. True or False? Forecasting is based on historical information and assumptions.

False

True

Answer

Correct Answer: True

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122. True or False? Predicting revenue is not part of financial forecasting.

True

False

Answer

Correct Answer: False

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123. True or False? Use of historical data is irrelevant to a financial forcast.

True

False

Answer

Correct Answer: False

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124. A cash forecast is an estimate of future inflows of revenue and _______?

outflows of profits

outflows of expenses

inflows of expenses

Answer

Correct Answer: outflows of expenses

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125. Which of the following helps create a financial model?

gross margin

expected tax rate

(All of these)

growth rate

Answer

Correct Answer: (All of these)

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126. True of False? Forecasting future revenues is one of the most difficult aspects when preparing a financial forecast.

True

False

Answer

Correct Answer: True

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127. True or False? Dividend structure and Capital structure are crucial to financial models

False

True

Answer

Correct Answer: True

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128. Projected financial statements are called:

SEC 10K Filings

Pro Forma Financial Statements

Cash Budgets

Annual Reports

Answer

Correct Answer: Pro Forma Financial Statements

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129. Management will use sensitivity analysis during financial forecasting to:

Analyze foreign economic conditions to determine currency risk.

Determine how different values of an independent variable will impact a particular dependent variable under a set of stated assumptions.

Determine the type of forecasting method to use.

Analyze how previous financial forecasts performed versus actual company performance.

Answer

Correct Answer: Determine how different values of an independent variable will impact a particular dependent variable under a set of stated assumptions.

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130. True or False? The Monte Carlo method is often used in modeling.

False

True

Answer

Correct Answer: True

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131. What is the discount rate often used in capital budgeting that makes the Net Present Value (NVP) of all cash flows from a particular project equal to zero:

Rate of Asset Return (RAR)

Turnover Rate

Internal Rate of Return (IRR)

Price to Earnings (P/E)

Answer

Correct Answer: Internal Rate of Return (IRR)

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132. True or False? Present value is the future amount of money that is discounted to today.

False

True

Answer

Correct Answer: True

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133. Company XYZ has a project that requires an immediate investment of $100,000 which management has calculated to have discounted cash inflows of $105,000. This project is:

Acceptable, because the Net Present Value (NPV) is equal to the required rate of return.

Not acceptable, because it has a negative Profitability Index.

Acceptable, because it has a positive Net Present Value (NPV).

Not acceptable, because the Internal Rate of Return (IRR) is negative.

Answer

Correct Answer: Acceptable, because it has a positive Net Present Value (NPV).

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134. Which of the following items would NOT be included in a cash budget?

Taxes

Depreciation

Cash receipts

Payments to Suppliers

Answer

Correct Answer: Depreciation

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135. Which type of security is used as a measurement of a low risk rate?

LIBOR

corporate bonds

government bonds

(none of these)

Answer

Correct Answer: government bonds

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136. True of False? The longer the financial forecast, the more accurate it will be.

True

False

Answer

Correct Answer: False

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137. Which of the following is NOT a forecasted financial statement?

Pro forma Statement of Financing

Pro forma Income Statement

Pro forma Balance Sheet

Pro forma Statement of Cash Flows

Answer

Correct Answer: Pro forma Statement of Financing

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138. What are the two overarching financial forecasting approaches?

Qualitative and Quantitative

Exponential and Qualitative

Average and Exponential

Rate Conversation and Sales Smoothing

Answer

Correct Answer: Qualitative and Quantitative

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139. True or False? Bayes theorem is often used in financial forecasting.

True

False

Answer

Correct Answer: True

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140. The indicator approach takes into account:

(None of these)

GDP

unemployment figures

(All of these)

Answer

Correct Answer: (All of these)

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141. True or False? Probability models are often used for financial forecasts.

True

False

Answer

Correct Answer: True

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Financial Forecasting MCQs | Topic-wise

MCQ on Basic Financial Forecasting

General Financial Forecasting MCQs

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Related MCQs

Financial Management MCQs

Financial Reporting MCQs

Financial Statements MCQs

General Financial Accounting MCQs

Generally Accepted Accounting Principles (GAAP) MCQs

Basic Financial Forecasting MCQ

1. Which of the following would most likely be included on a summary page for Income Statement data?

2. Which of the following decisions could be made by examining the Balance Sheet?

3. Which of the following would one expect to be the highest expense?

4. Another name for the Balance Sheet is ____________________.

5. Valuation is a ______________________.

6. Why would a company be conservative when projecting revenues?

7. Valuation will typically trend _______________.

8. Valuation can be calculated by ____________________.

9. A company has a pre-money valuation of $1,000,000. An investor will invest $100,000. The post-money valuation is _________________.

10. How is Cash at the beginning of the period determined?

11. In a variance/sensitivity analysis, a company will typically calculate _________________.

12. Which of the following would be a logical arrangement for showing revenue?

13. Retained Earnings reflect ____________________.

14. Which of the following would most likely NOT be included on summary financials?

15. Which of the following is the accepted format for a forecasted Cash Flow Statement?

16. The basic formula for a Balance Sheet is __________________.

17. Companies calculate their valuation for the purpose of _____________________.

18. Naming assumption cells is helpful because ____________________.

19. What purpose does a central assumptions input tab serve in an Excel-based forecast?

20. Overall, what is the purpose of a Cash Flow Statement?

21. For most new ventures in the process of creating a forecast, the expense that warrants the most detailed analysis and input is _____________.

22. A normal revenue model will _______________.

23. Would it be better to create detailed input that individually forecasts expenses or to create a simple, one-line input for Operating Expenses?

24. What is the purpose of a summary page?

25. Which of the following is the accepted format for a forecasted P&L?

26. A simple method of calculating variance is to _________________.

27. The term "revenue driver" refers to ____________________.

28. In which of the following sections would a startup company record an investment by a venture capital firm?

29. Why would an investor be interested in a company's pre-money valuation?

30. In general, a financial plan can be defined as _____________________.

31. The majority ownership of a private company is typically held by __________________.

32. Ad Revenue, which is revenue generated by placing advertisements of other companies on your site, can be modeled by _________________.

33. To be as specific as possible, a revenue forecast should ______________.

34. Which of the following decisions would best be made by looking at cash flow?

35. The most logical formatting convention for assumptions would be ___________________.

36. Why is it important to create assumptions for all possible changing variables?

37. Which of the following would be the most useful forecasting interval?

38. Which of the following is the accepted format for a forecasted Balance Sheet?

39. Which of the following decisions could be made by looking at the Balance Sheet?

40. In which of the following sections would Change in Accounts Receivable be recorded?

41. Another way to express the Balance Sheet formula is ________________.

42. In what way are the Income Statement and the Balance Sheet linked in a dynamic forecast?

43. Capitalization is defined as ______________________.

44. The term "burn rate" refers to ______________.

45. In which of the following ways would typical Rent Expense be modeled?

46. How is income tax forecasted?

47. In what way are the Cash Flow Statement and the Balance Sheet linked in a dynamic forecast?

48. Operating expenses should ____________________.

49. Which of the following would most likely be included on a summary page for Balance Sheet data?

50. Should a summary include metrics such as Gross Margin %?

51. The purpose of a worst case analysis is to _____________________.

52. One method of calculating the valuation of a company is ________________.

53. Net Income on the Balance Sheet reflects _______________.

54. A capitalization summary would show ______________________.

55. To calculate a worst case scenario, a company would ____________ and ____________.

56. Why is Change in Accounts Payable added back to Net Income?

57. The Net Income on the Cash Flow Forecast comes from the __________________.

58. What does an increasing trend in Accounts Payable indicate for a company?

59. Which of the following parties should be kept in mind when creating a financial forecast?

60. Which of the following would NOT be included on a summary page?

61. Is income tax forecasted?

62. Revenues on the Profit & Loss should be changed ___________________.

63. For a startup company looking to gain investor interest, which of the following seems like a reasonable amount of time to forecast ahead?

64. Which of the following represents three possible revenue streams for an online venture?

65. Why is it reasonable for a startup company to forecast a Net Loss for several years?

66. Why might someone forecast future years as one annual number?

67. Depreciation on the Balance Sheet reflects ___________________.

68. Why would a company perform a variance/sensitivity analysis?

69. An operating budget in a corporate setting is usually prepared ________________.

70. Which of the following is NOT an operating expense?

71. The primary financial statements that are forecast are _________________.

72. Why does a Balance Sheet balance (assets = liabilities + equity)?

73. A company has a post-money valuation of $500,000. The last investor put in $100,000. The pre-money valuation before the investor came in was _________________.

74. Before they are updated, financial forecasts are typically used for:

75. True or False? Prediction markets are informative markets that are created for the purpose of making market predictions.

76. The Percent of Sales Method of financial forecasting will help to identify:

77. Which of the following are important characteristics when identifying peer companies to use in firm valuation?

78. The Black-Scholes model calculates the price of a:

79. True or False? Bayes theorem does not use balance sheets to make predictions.

1.
Which of the following would most likely be included on a summary page for Income Statement data?

2.
Which of the following decisions could be made by examining the Balance Sheet?

3.
Which of the following would one expect to be the highest expense?

4.
Another name for the Balance Sheet is ____________________.

5.
Valuation is a ______________________.

6.
Why would a company be conservative when projecting revenues?

7.
Valuation will typically trend _______________.

8.
Valuation can be calculated by ____________________.

9.
A company has a pre-money valuation of $1,000,000. An investor will invest $100,000. The post-money valuation is _________________.

10.
How is Cash at the beginning of the period determined?

11.
In a variance/sensitivity analysis, a company will typically calculate _________________.

12.
Which of the following would be a logical arrangement for showing revenue?

13.
Retained Earnings reflect ____________________.

14.
Which of the following would most likely NOT be included on summary financials?

15.
Which of the following is the accepted format for a forecasted Cash Flow Statement?

16.
The basic formula for a Balance Sheet is __________________.

17.
Companies calculate their valuation for the purpose of _____________________.

18.
Naming assumption cells is helpful because ____________________.

19.
What purpose does a central assumptions input tab serve in an Excel-based forecast?

20.
Overall, what is the purpose of a Cash Flow Statement?

21.
For most new ventures in the process of creating a forecast, the expense that warrants the most detailed analysis and input is _____________.

22.
A normal revenue model will _______________.

23.
Would it be better to create detailed input that individually forecasts expenses or to create a simple, one-line input for Operating Expenses?

24.
What is the purpose of a summary page?

25.
Which of the following is the accepted format for a forecasted P&L?

26.
A simple method of calculating variance is to _________________.

27.
The term "revenue driver" refers to ____________________.

28.
In which of the following sections would a startup company record an investment by a venture capital firm?

29.
Why would an investor be interested in a company's pre-money valuation?

30.
In general, a financial plan can be defined as _____________________.

31.
The majority ownership of a private company is typically held by __________________.

32.
Ad Revenue, which is revenue generated by placing advertisements of other companies on your site, can be modeled by _________________.

33.
To be as specific as possible, a revenue forecast should ______________.

34.
Which of the following decisions would best be made by looking at cash flow?

35.
The most logical formatting convention for assumptions would be ___________________.

36.
Why is it important to create assumptions for all possible changing variables?

37.
Which of the following would be the most useful forecasting interval?

38.
Which of the following is the accepted format for a forecasted Balance Sheet?

39.
Which of the following decisions could be made by looking at the Balance Sheet?

40.
In which of the following sections would Change in Accounts Receivable be recorded?

41.
Another way to express the Balance Sheet formula is ________________.

42.
In what way are the Income Statement and the Balance Sheet linked in a dynamic forecast?

43.
Capitalization is defined as ______________________.

44.
The term "burn rate" refers to ______________.

45.
In which of the following ways would typical Rent Expense be modeled?

46.
How is income tax forecasted?

47.
In what way are the Cash Flow Statement and the Balance Sheet linked in a dynamic forecast?

48.
Operating expenses should ____________________.

49.
Which of the following would most likely be included on a summary page for Balance Sheet data?

50.
Should a summary include metrics such as Gross Margin %?

51.
The purpose of a worst case analysis is to _____________________.

52.
One method of calculating the valuation of a company is ________________.

53.
Net Income on the Balance Sheet reflects _______________.

54.
A capitalization summary would show ______________________.

55.
To calculate a worst case scenario, a company would and .

56.
Why is Change in Accounts Payable added back to Net Income?

57.
The Net Income on the Cash Flow Forecast comes from the __________________.

58.
What does an increasing trend in Accounts Payable indicate for a company?

59.
Which of the following parties should be kept in mind when creating a financial forecast?

60.
Which of the following would NOT be included on a summary page?

61.
Is income tax forecasted?

62.
Revenues on the Profit & Loss should be changed ___________________.

63.
For a startup company looking to gain investor interest, which of the following seems like a reasonable amount of time to forecast ahead?

64.
Which of the following represents three possible revenue streams for an online venture?

65.
Why is it reasonable for a startup company to forecast a Net Loss for several years?

66.
Why might someone forecast future years as one annual number?

67.
Depreciation on the Balance Sheet reflects ___________________.

68.
Why would a company perform a variance/sensitivity analysis?

69.
An operating budget in a corporate setting is usually prepared ________________.

70.
Which of the following is NOT an operating expense?

71.
The primary financial statements that are forecast are _________________.

72.
Why does a Balance Sheet balance (assets = liabilities + equity)?

73.
A company has a post-money valuation of $500,000. The last investor put in $100,000. The pre-money valuation before the investor came in was _________________.