Financial Modeling & Forecasting Flashcards
7 cards from real CPA 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 Modeling & Forecasting flashcards as text
In a financial model, 'capex intensity' is best described as:
Answer: Capital expenditures as a percentage of revenue
Capex intensity (capex/revenue) measures how much capital investment a company requires to generate each dollar of revenue, useful for cross-company comparisons.
What is a 'waterfall' schedule in the context of debt modeling?
Answer: The order in which different debt tranches are repaid, with senior debt receiving priority
A debt waterfall specifies the repayment priority — senior secured debt is paid before subordinated debt, which is paid before equity in liquidation or from operating cash flow.
In a financial model, what does 'change in net working capital' represent on the cash flow statement?
Answer: The cash impact of changes in operating assets and liabilities such as receivables, inventory, and payables
Changes in net working capital capture the cash consumed or released by movements in operating current accounts — rising receivables or inventory uses cash; rising payables provides cash.
Which assumption most directly drives the 'tax shield' benefit in a leveraged buyout model?
Answer: Interest expense on debt, which is tax-deductible
Interest payments on LBO debt are tax-deductible, creating a tax shield that reduces the effective cost of debt financing and enhances equity returns.
When building a cost structure model, what is the key distinction between 'fixed costs' and 'variable costs' in a forecast?
Answer: Variable costs scale proportionally with revenue or volume, while fixed costs remain constant regardless of output
Variable costs (e.g., COGS, commissions) move with activity levels, while fixed costs (e.g., rent, base salaries) remain stable regardless of production volume.
In comparable company analysis used within financial modeling, which multiple is most commonly used for capital-structure-neutral comparisons?
Answer: EV/EBITDA multiple
EV/EBITDA is capital-structure-neutral because both enterprise value and EBITDA are unaffected by leverage, making it appropriate for comparing companies with different debt levels.
A company's free cash flow to the firm (FCFF) is best defined as:
Answer: Operating cash flow minus capital expenditures, available to all capital providers before debt service
FCFF = Operating Cash Flow − Capex, representing cash available to both debt and equity holders before any financing payments.