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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 211
A company’s interest coverage ratio falls. What does this indicate?
Select an option first.
Correct answer: B — Lower ability to pay interest
Explanation: Lower coverage = weaker ability to meet interest. A: Opposite. C: Not implied. D: Not implied.
Question 212
A company’s valuation multiple rises. What does this imply?
Select an option first.
Correct answer: A — Investors expect higher growth
Explanation: Higher multiples reflect optimism. B, C, D: Would lower multiples.
Question 213
A company’s asset turnover improves. What does this imply?
Select an option first.
Correct answer: A — Higher sales relative to assets
Explanation: Turnover = sales / assets. B: Opposite. C: Would reduce turnover. D: Higher turnover = better efficiency.
Question 214
A company’s return on assets falls even though profit stays constant. What explains this?
Select an option first.
Correct answer: A — Assets increased
Explanation: ROA = profit / assets. Higher assets → lower ROA. B: Would increase ROA. C, D: Not consistent with “profit stays constant.”
Question 215
A company’s return on equity rises while profit stays flat. What explains this?
Select an option first.
Correct answer: B — Lower equity
Explanation: Lower equity increases ROE. A: Would reduce ROE. C: Not part of ROE. D: Lower leverage reduces ROE.
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Question 216
A company’s cash flow from investing is consistently negative. What does this imply?
Select an option first.
Correct answer: B — It is investing in long‑term assets
Explanation: Negative investing cash flow usually means capital spending. A: Not implied. C: Profitability is separate. D: Not related.
Question 217
A company’s asset turnover falls. What does this imply?
Select an option first.
Correct answer: B — Lower efficiency
Explanation: Lower turnover = less efficient use of assets. A: Opposite. C: Would increase turnover. D: Would increase turnover.
Question 218
A company’s gross margin falls while sales stay constant. What is the likely cause?
Select an option first.
Correct answer: A — Higher production costs
Explanation: Gross margin = sales – production costs. B: Would increase margin. C: Would increase margin. D: Not implied.
Question 219
A company’s operating margin rises while gross margin stays flat. What explains this?
Select an option first.
Correct answer: A — Lower operating expenses
Explanation: Operating margin improves when operating costs fall. B: Would reduce gross margin. C: Below operating profit. D: Below operating profit.
Question 220
A company’s net margin falls even though operating margin stays constant. What explains this?
Select an option first.
Correct answer: A — Higher interest expense
Explanation: Net margin includes interest. B: Would increase net margin. C: Would increase net margin. D: Would increase operating margin too.
Question 221
A company’s return on equity rises because equity falls. What is this an example of?
Select an option first.
Correct answer: B — Higher leverage
Explanation: Lower equity = higher leverage → higher ROE. A: Profit unchanged. C: Opposite. D: Not implied.
Question 222
A company’s profit margin rises but asset turnover falls. What happens to ROA?
Select an option first.
Correct answer: C — Could rise or fall
Explanation: ROA = margin × turnover; one up, one down → mixed effect. A/B/D: Not guaranteed.
Question 223
A company’s asset turnover rises. What does this indicate?
Select an option first.
Correct answer: B — Higher efficiency
Explanation: Higher turnover = better use of assets. A: Opposite. C: Would reduce turnover. D: Would reduce turnover.
Question 224
A company’s interest coverage ratio falls. What does this imply?
Select an option first.
Correct answer: B — Weaker ability to pay interest
Explanation: Lower coverage = weaker ability to meet interest. A: Opposite. C: Would increase coverage. D: Not implied.
Question 225
A company’s fixed asset turnover rises. What does this indicate?
Select an option first.
Correct answer: B — Higher efficiency
Explanation: Higher turnover = better use of fixed assets. A: Opposite. C: Would reduce turnover. D: Would reduce turnover.
Question 226
A company’s gross margin rises while sales stay constant. What is the likely cause?
Select an option first.
Correct answer: A — Lower production costs
Explanation: Lower production costs increase gross margin. B: Opposite. C, D: Below gross profit.
Question 227
A company’s operating margin falls even though gross margin stays constant. What explains this?
Select an option first.
Correct answer: A — Higher operating expenses
Explanation: Operating margin falls when operating costs rise. B: Would increase margin. C, D: Would affect gross margin.
Question 228
A company’s net margin rises even though operating margin stays flat. What explains this?
Select an option first.
Correct answer: A — Lower interest expense
Explanation: Net margin includes interest. B: Would reduce net margin. C, D: Would reduce operating margin.
Question 229
A company’s return on equity rises because profit rises faster than equity. What is this an example of?
Select an option first.
Correct answer: A — Improved profitability
Explanation: ROE rises when profit grows faster than equity. B: Leverage unchanged. C: Not implied. D: Opposite.
Question 230
A company’s profit margin rises but asset turnover falls. What happens to ROE?
Select an option first.
Correct answer: C — Could rise or fall
Explanation: ROE = margin × turnover × leverage; mixed effects. A/B/D: Not guaranteed.
Question 231
A company’s operating margin rises even though gross margin stays flat. What explains this?
Select an option first.
Correct answer: A — Lower operating expenses
Explanation: Operating margin rises when operating costs fall. B: Would reduce margin. C, D: Affect gross margin.
Question 232
A company’s return on equity rises because equity falls while profit stays constant. What is this an example of?
Select an option first.
Correct answer: A — Higher leverage
Explanation: Lower equity = higher leverage → higher ROE. B: Opposite. C, D: Not implied.
Question 233
A company’s return on assets rises even though profit stays constant. What explains this?
Select an option first.
Correct answer: A — Assets decreased
Explanation: ROA = profit / assets → lower assets = higher ROA. B: Would reduce ROA. C, D: Not consistent with “profit stays constant.”
Question 234
A company’s profit margin falls but asset turnover rises. What happens to ROE?
Select an option first.
Correct answer: C — Could rise or fall
Explanation: ROE = margin × turnover × leverage; mixed effects. A/B/D: Not guaranteed.
Question 235
A company’s asset turnover rises. What does this imply?
Select an option first.
Correct answer: A — Better use of assets
Explanation: Higher turnover = better efficiency. B: Opposite. C, D: Would reduce turnover.
Question 236
A company’s interest coverage ratio falls sharply. What does this suggest?
Select an option first.
Correct answer: A — Weaker ability to pay interest
Explanation: Lower coverage = weaker ability to meet interest obligations. B: Opposite. C, D: Not implied.
Question 237
A company’s gross margin stays constant, but operating margin rises. What explains this?
Select an option first.
Correct answer: A — Lower operating expenses
Explanation: Operating margin rises when operating costs fall. B: Opposite. C, D: Would affect gross margin.
Question 238
A company’s net margin rises even though gross and operating margins stay flat. What explains this?
Select an option first.
Correct answer: A — Lower interest expense
Explanation: Net margin includes interest. B: Would reduce net margin. C, D: Would affect operating margin.
Question 239
A company’s return on equity falls even though profit stays constant. What explains this?
Select an option first.
Correct answer: A — Equity increased
Explanation: ROE = profit / equity → higher equity reduces ROE. B: Would increase ROE. C, D: Not implied.
Question 240
A company’s return on assets rises because asset turnover rises. What does this imply?
Select an option first.
Correct answer: A — Better use of assets
Explanation: Higher turnover = more efficient use of assets. B: Opposite. C, D: Not implied.
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