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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 241
A company’s profit margin rises but sales fall. What happens to profit?
Select an option first.
Correct answer: A — Could rise or fall
Explanation: Higher margin × lower sales → mixed effect. B, C, D: Not guaranteed.
Question 242
A company’s operating margin falls even though sales rise. What explains this?
Select an option first.
Correct answer: A — Operating costs rose faster than sales
Explanation: Margin falls when costs rise faster than revenue. B: Would increase margin. C: Would affect gross margin. D: Below operating profit.
Question 243
A company’s asset turnover falls. What does this imply?
Select an option first.
Correct answer: A — Less efficient use of assets
Explanation: Lower turnover = weaker efficiency. B: Opposite. C, D: Would increase turnover.
Question 244
A company’s gross margin rises while sales stay constant. What explains this?
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 245
A company’s operating margin falls even though gross margin rises. 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: Affect gross margin.
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Question 246
A company’s net margin rises even though operating margin falls. What explains this?
Select an option first.
Correct answer: A — Lower interest expense
Explanation: Net margin includes interest; lower interest can offset weaker operations. B: Would reduce net margin. C, D: Would reduce operating margin further.
Question 247
A company’s return on equity rises even though profit stays constant. What explains this?
Select an option first.
Correct answer: A — Equity decreased
Explanation: ROE = profit / equity → lower equity increases ROE. B: Would reduce ROE. C, D: Not implied.
Question 248
A company’s profit margin rises but asset turnover falls. What happens to ROE?
Select an option first.
Correct answer: A — Could rise or fall
Explanation: ROE = margin × turnover × leverage → mixed effects. B, C, D: Not guaranteed.
Question 249
A company’s gross margin falls while sales rise. What explains this?
Select an option first.
Correct answer: A — Higher production costs
Explanation: Higher production costs reduce gross margin. B: Would increase margin. C: Below gross profit. D: Below operating profit.
Question 250
A company’s return on equity rises because leverage rises. What does this imply?
Select an option first.
Correct answer: A — More debt relative to equity
Explanation: Higher leverage = more debt relative to equity. B: Opposite. C, D: Not implied.
Question 251
A company’s profit margin falls but sales rise sharply. What happens to profit?
Select an option first.
Correct answer: A — Could rise or fall
Explanation: Lower margin × higher sales → mixed effect. B, C, D: Not guaranteed.
Question 252
A company’s gross margin rises while operating margin falls. What explains this?
Select an option first.
Correct answer: A — Higher operating expenses
Explanation: Operating margin falls when operating costs rise. B: Would increase operating margin. C, D: Would raise gross margin too.
Question 253
A company’s operating margin rises even though sales fall. What explains this?
Select an option first.
Correct answer: A — Operating costs fell faster than sales
Explanation: Margin rises when costs fall more than revenue. B, C: Would reduce margin. D: Below operating profit.
Question 254
A company’s net margin falls even though gross and operating margins stay 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, D: Would affect operating margin.
Question 255
A company’s return on assets falls even though profit rises. What explains this?
Select an option first.
Correct answer: A — Assets increased faster than profit
Explanation: ROA = profit / assets → if assets grow faster, ROA falls. B: Would increase ROA. C, D: Not consistent with “profit rises.”
Question 256
A company’s profit margin rises but asset turnover falls. What happens to ROA?
Select an option first.
Correct answer: A — Could rise or fall
Explanation: ROA = margin × turnover → mixed effects. B, C, D: Not guaranteed.
Question 257
A company’s ROE rises for three consecutive years, but: - Net margin is flat - Asset turnover is falling - Leverage is rising sharply What is driving ROE?
Select an option first.
Correct answer: C — Higher leverage
Explanation: ROE rising despite weaker efficiency = leverage‑driven ROE. A, B: Margins and turnover are flat/falling. D: Not implied.
Question 258
A company’s gross margin rises, operating margin falls, and net margin rises. What combination explains this?
Select an option first.
Correct answer: A — Lower production costs, higher operating costs, lower interest expense
Explanation: Gross margin ↑ → production costs ↓ Operating margin ↓ → operating costs ↑ Net margin ↑ → interest expense ↓ Perfect alignment.
Question 259
A company’s ROA rises while ROE falls. What explains this?
Select an option first.
Correct answer: B — Profit rising and leverage falling
Explanation: ROA ↑ → profit rising relative to assets ROE ↓ → equity rising faster than profit → leverage falling
Question 260
A company’s leverage ratio rises, but its interest coverage also rises. What explains this?
Select an option first.
Correct answer: A — Profit rose faster than debt
Explanation: Leverage ↑ → more debt Coverage ↑ → profit rose even faster
Question 261
A company’s solvency improves even though total debt rises. What explains this?
Select an option first.
Correct answer: A — Equity rose faster than debt
Explanation: Solvency = debt relative to capital → if equity grows faster, solvency improves. B, C, D: Would worsen solvency.
Question 262
A company’s interest coverage falls even though profit rises. What explains this?
Select an option first.
Correct answer: A — Interest expense rose faster than profit
Explanation: Coverage = EBIT / interest → if interest grows faster, coverage falls. B: Would increase coverage. C: Would increase EBIT. D: Would reduce interest.
Question 263
A company’s asset turnover rises while its fixed asset turnover falls. What explains this?
Select an option first.
Correct answer: C — Sales increased while fixed assets increased
Explanation: Asset turnover ↑ → sales ↑ faster than total assets Fixed asset turnover ↓ → fixed assets ↑ faster than sales
Question 264
A company’s inventory turnover falls while gross margin rises. What explains this?
Select an option first.
Correct answer: A — Higher selling prices but slower inventory movement
Explanation: Gross margin ↑ → higher prices or lower costs Turnover ↓ → slower movement Higher prices + slower movement fits perfectly.
Question 265
A company’s fixed asset turnover rises while its ROA falls. What explains this?
Select an option first.
Correct answer: A — Profit fell
Explanation: ROA = profit / assets → falling ROA means profit fell Fixed asset turnover ↑ means efficiency improved, but profit still fell.
Question 266
A company’s asset base shifts from fixed assets to working capital. What is the likely effect?
Select an option first.
Correct answer: A — Higher asset turnover
Explanation: Working capital turns faster than fixed assets → higher turnover. B: Opposite. C, D: Not implied.
Question 267
A company’s revenue rises, but: - Gross margin falls - Operating margin rises - Net margin falls What explains this?
Select an option first.
Correct answer: A — Higher production costs, lower operating costs, higher interest expense
Explanation: Gross margin ↓ → production costs ↑ Operating margin ↑ → operating costs ↓ Net margin ↓ → interest expense ↑
Question 268
A company’s ROE rises while ROA falls. What explains this?
Select an option first.
Correct answer: A — Leverage increased
Explanation: ROA ↓ → profit fell relative to assets ROE ↑ → leverage amplified returns despite weaker ROA
Question 269
If current assets as a percentage of total assets are falling while property, plant, and equipment (PPE) is stable, which is most consistent?
Select an option first.
Correct answer: B — The company is tying up less in working capital
Explanation: A lower share of current assets (with PPE stable) suggests relatively less capital in receivables, inventory, and other short-term items—i.e., less working capital intensity. A: Cash is part of current assets; falling current assets doesn’t mean more cash. C: Over-investing in inventory would increase current assets. D: PPE is stable, so fixed assets are not shrinking.
Question 270
The current ratio has improved slightly, but days payable outstanding have increased significantly. What is the most likely explanation?
Select an option first.
Correct answer: B — The company is stretching payments to suppliers
Explanation: Higher days payable means the company is taking longer to pay suppliers, effectively using them as a source of short-term financing. A: That would reduce days payable. C: Inventory going to zero is extreme and not implied. D: Short-term debt is not mentioned.
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