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Free Questions › CFA › Financial Statement Analysis
Free CFA Financial Statement Analysis Practice Questions & Answers
900 exam-style Financial Statement Analysis questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 421
A company’s goodwill rises sharply. What is the likely cause?
Select an option first.
Correct answer: A — Acquisition of another business
Explanation: Goodwill increases mainly through acquisitions. B, C, D: Not related.
Question 422
A company’s debt rises sharply while profit stays flat. What happens?
Select an option first.
Correct answer: A — Leverage increases
Explanation: More debt relative to profit = higher leverage. B: Opposite. C, D: Not implied.
Question 423
A company’s current ratio rises while both inventory and receivables stay constant. What explains this?
Select an option first.
Correct answer: A — Cash increased
Explanation: More cash increases current assets → higher current ratio. B, C: Increase current liabilities → reduce ratio. D: Would reduce current assets.
Question 424
A company’s receivables days rise while sales stay constant. What does this indicate?
Select an option first.
Correct answer: A — Slower collections
Explanation: More days = slower collection. B: Opposite. C: Slower collections reduce cash. D: Receivables would rise.
Question 425
A company’s inventory days rise sharply. What is the likely cause?
Select an option first.
Correct answer: A — Slower inventory movement
Explanation: More days = slower turnover. B: Opposite. C, D: Not implied.
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Question 426
A company’s payables days fall while sales stay constant. What does this imply?
Select an option first.
Correct answer: A — Faster payments to suppliers
Explanation: Fewer days = faster payments. B: Opposite. C: Faster payments reduce cash. D: True but not the primary explanation.
Question 427
A company’s working capital falls even though current assets rise. What explains this?
Select an option first.
Correct answer: A — Current liabilities rose faster
Explanation: Working capital = CA – CL → if CL rises more, WC falls. B: Would increase WC. C, D: Would reduce CA.
Question 428
A company’s cash conversion cycle rises. What does this indicate?
Select an option first.
Correct answer: A — Slower cash recovery
Explanation: Longer cycle = slower conversion of working capital into cash. B: Opposite. C, D: Would shorten the cycle.
Question 429
A company’s operating cash flow is consistently higher than profit. What is the likely cause?
Select an option first.
Correct answer: A — High non‑cash expenses
Explanation: Non‑cash expenses reduce profit but not cash. B, C, D: Would reduce cash.
Question 430
A company’s operating cash flow falls even though profit stays constant. What explains this?
Select an option first.
Correct answer: A — Higher receivables
Explanation: Rising receivables reduce cash. B: Would increase cash. C, D: Would increase cash.
Question 431
A company’s receivables turnover falls. What does this indicate?
Select an option first.
Correct answer: A — Slower collections
Explanation: Lower turnover = slower collection speed. B: Opposite. C: Slower collections reduce cash. D: Receivables would rise.
Question 432
A company’s inventory rises faster than sales. What does this suggest?
Select an option first.
Correct answer: A — Possible buildup of unsold goods
Explanation: Inventory rising faster than sales often signals slower movement. B: Would reduce inventory. C: Opposite. D: Lower production would reduce inventory.
Question 433
A company’s payables rise faster than cost of goods sold. What does this imply?
Select an option first.
Correct answer: A — Slower payments
Explanation: Payables rising faster = delaying payments. B: Opposite. C: Slower payments preserve cash. D: True directionally, but A is the direct explanation.
Question 434
A company’s working capital becomes negative. What does this indicate?
Select an option first.
Correct answer: A — Current liabilities exceed current assets
Explanation: Negative working capital = CL > CA. B: Opposite. C, D: Not implied.
Question 435
A company shortens its payment terms to suppliers. What happens?
Select an option first.
Correct answer: A — Payables days fall
Explanation: Shorter terms → faster payments → fewer payable days. B: Opposite. C: Faster payments reduce cash. D: Not implied.
Question 436
A company’s operating cash flow rises while profit falls. What explains this?
Select an option first.
Correct answer: A — Higher non‑cash expenses
Explanation: More non‑cash expenses reduce profit but increase cash flow. B, C, D: Would reduce cash.
Question 437
A company’s investing cash flow becomes more negative. What is the likely cause?
Select an option first.
Correct answer: A — Higher capital spending
Explanation: More negative investing cash flow = more asset purchases. B: Would increase cash. C: Would make investing cash flow less negative. D: Financing item.
Question 438
A company’s financing cash flow becomes positive. What is the likely cause?
Select an option first.
Correct answer: A — Borrowing or issuing shares
Explanation: Borrowing or issuing equity brings in cash. B, C, D: Use cash.
Question 439
A company’s operating cash flow falls even though profit rises. What explains this?
Select an option first.
Correct answer: A — Higher receivables
Explanation: Rising receivables reduce cash. B: Would increase cash. C, D: Would increase cash.
Question 440
A company’s cash balance rises even though free cash flow is negative. What explains this?
Select an option first.
Correct answer: A — Borrowing or equity issuance
Explanation: Cash can rise if external financing exceeds negative FCF. B: Would increase FCF. C, D: Would increase operating cash flow.
Question 441
A company delays writing down damaged inventory. What happens?
Select an option first.
Correct answer: A — Profit is overstated
Explanation: Not writing down inventory inflates profit. B: Opposite. C: Assets are overstated. D: Non‑cash.
Question 442
A company’s interest coverage ratio falls below 1.0. What does this indicate?
Select an option first.
Correct answer: A — Operating profit is not enough to cover interest
Explanation: Coverage < 1 means interest exceeds operating profit. B: Opposite. C, D: Not implied.
Question 443
A company’s current ratio increases while its quick ratio decreases. What explains this?
Select an option first.
Correct answer: A — Inventory increased
Explanation: Inventory boosts current ratio but is excluded from quick ratio. B, C: Would raise both ratios. D: Would reduce both ratios.
Question 444
A company’s receivables turnover rises while sales stay constant. What does this indicate?
Select an option first.
Correct answer: A — Faster collections
Explanation: Higher turnover = faster collection. B: Opposite. C: Would reduce turnover. D: Faster collections increase cash.
Question 445
A company’s payables days rise while cost of goods sold stays constant. What does this imply?
Select an option first.
Correct answer: A — Slower payments
Explanation: More days = slower payments. B: Opposite. C, D: Slower payments preserve cash.
Question 446
A company’s working capital increases even though current liabilities rise. What explains this?
Select an option first.
Correct answer: A — Current assets rose more than current liabilities
Explanation: WC = CA – CL → if CA rises more, WC increases. B, C, D: Would reduce CA.
Question 447
A company’s cash conversion cycle lengthens. What does this indicate?
Select an option first.
Correct answer: A — Slower cash recovery
Explanation: Longer cycle = slower conversion of operations into cash. B: Opposite. C, D: Would shorten the cycle.
Question 448
A company’s investing cash flow becomes positive. What is the likely reason?
Select an option first.
Correct answer: A — Asset sales
Explanation: Selling assets generates cash. B: Uses cash. C, D: Financing items.
Question 449
A company’s financing cash flow becomes negative. What is the likely cause?
Select an option first.
Correct answer: A — Debt repayment
Explanation: Repaying debt uses cash. B, C, D: Bring in cash.
Question 450
A company’s operating cash flow rises while profit stays constant. What explains this?
Select an option first.
Correct answer: C — Higher non‑cash expenses
Explanation: More non‑cash expenses reduce profit but increase cash flow. A, B: Would increase cash but also affect working capital. D: Would reduce cash.
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