Economic & Financial Analysis Flashcards
7 cards from real CMA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Economic & Financial Analysis flashcards as text
Which yield curve shape typically signals an upcoming economic recession?
Answer: Inverted yield curve
An inverted yield curve, where short-term rates exceed long-term rates, has historically preceded recessions by 6-18 months.
A company's current ratio is 1.8 and its quick ratio is 0.9. What does this discrepancy most likely indicate?
Answer: The company carries a large inventory balance
A large gap between current and quick ratios indicates significant inventory, since the quick ratio excludes inventory from current assets.
What does the term 'crowding out' refer to in macroeconomics?
Answer: Government borrowing raising interest rates and reducing private investment
Crowding out occurs when government deficit spending increases demand for loanable funds, raising interest rates and displacing private sector investment.
In discounted cash flow analysis, which scenario would INCREASE the estimated intrinsic value of a stock?
Answer: Reducing the weighted average cost of capital
A lower WACC reduces the discount rate applied to future cash flows, increasing their present value and thus the intrinsic value estimate.
The Quantity Theory of Money (MV = PQ) predicts that if money supply doubles and velocity is constant, what happens to nominal GDP?
Answer: Nominal GDP doubles
With constant velocity, doubling M must cause PQ (nominal GDP) to double, since MV must equal PQ.
Which financial metric best measures how efficiently a company converts its invested capital into profit?
Answer: Return on invested capital (ROIC)
ROIC measures net operating profit after tax relative to total invested capital, capturing efficiency across both debt and equity financing.
A market analyst observes that consumer confidence has dropped sharply while unemployment claims rise. From a top-down analysis perspective, this most directly affects which stage?
Answer: Macroeconomic assessment
Top-down analysis starts with macroeconomic assessment, and indicators like consumer confidence and unemployment claims are macroeconomic data points.