Financial Analysis Flashcards
7 cards from real CAC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Analysis flashcards as text
A company's net income is $300 million and its average shareholders' equity is $2 billion. What is the return on equity (ROE)?
Answer: 15%
ROE = $300M / $2,000M = 15%.
Which metric shows how efficiently a finance company uses its total assets to generate profit?
Answer: Return on assets (ROA)
ROA divides net income by average total assets to show asset efficiency.
Why do auto finance companies often securitize their receivables?
Answer: To get funding at attractive rates by selling asset-backed securities backed by the loans
Securitization turns loan pools into asset-backed securities, which gives the company liquidity and diversifies its funding.
In an auto ABS deal, what is overcollateralization?
Answer: Pledging more receivables than the face value of the notes issued
The extra collateral above the note balance absorbs losses first, which protects investors as credit enhancement.
A lender's operating expenses are $90 million and its total revenue is $300 million. What is the operating expense ratio?
Answer: 30%
$90M / $300M = 30% of revenue spent on operating expenses.
Which statement of cash flows section would show the proceeds from issuing new senior notes?
Answer: Financing activities
Borrowing and repaying debt are financing activities.
Why do lenders closely watch rising average loan terms (for example, 72-84 months)?
Answer: Longer terms slow equity buildup, raising negative-equity and loss-severity risk
Principal is paid down more slowly over long terms while the vehicle depreciates, which leaves borrowers upside down for longer.