Financial Statement Analysis Flashcards
7 cards from real CCM 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 Statement Analysis flashcards as text
A manufacturer's gross profit margin declined from 42% to 31% over three years while revenue grew. What is the most probable cause?
Answer: Cost of goods sold rose faster than revenue, possibly due to input cost inflation or pricing pressure
A declining gross margin with growing revenue typically signals that COGS is rising faster than prices, often from raw material cost increases or competitive pricing pressure.
When comparing two companies in the same industry, Company A has a fixed asset turnover of 8.2 and Company B has 3.1. What does this suggest?
Answer: Company A generates significantly more revenue per dollar of fixed assets
A higher fixed asset turnover means Company A generates more revenue for each dollar invested in fixed assets, indicating greater operational efficiency.
A credit manager is reviewing a borrower's financial statements and finds that capital expenditures exceed depreciation every year for five consecutive years. What does this pattern most likely indicate?
Answer: The company is consistently investing in growth by expanding its fixed asset base
When capex consistently exceeds depreciation, the company is net-investing in fixed assets, suggesting expansion or modernization of its productive capacity.
Which of the following is the correct formula for calculating the debt service coverage ratio (DSCR)?
Answer: EBITDA ÷ (principal payments + interest payments)
DSCR is calculated as EBITDA (or net operating income) divided by total debt service (principal + interest), showing whether earnings can cover debt obligations.
A company's income statement shows a net loss, but the cash flow statement shows positive operating cash flow. Which scenario best explains this?
Answer: Large non-cash charges such as depreciation and amortization exceed the net loss
High non-cash charges (depreciation, amortization, impairments) can result in a book net loss while actual cash from operations remains positive.
In vertical (common-size) analysis of an income statement, each line item is expressed as a percentage of:
Answer: Net revenue or net sales
In vertical analysis of an income statement, all line items are divided by net sales, allowing comparison of cost and profitability structure across periods or companies.
A retailer's inventory days increased from 45 to 90 days. From a credit risk perspective, this is concerning primarily because:
Answer: Slow-moving inventory ties up cash and may need to be written down, reducing asset quality
Doubling inventory days suggests inventory is moving slowly, which can lead to write-downs, reduced liquidity, and overstated asset values on the balance sheet.