Learning Module 12 Introduction to Financial Statement Modeling

Which of the following is the most direct method to forecast a companys accounts receivable in a pro forma model?

An analyst builds a revenue forecast by estimating volume growth of 6 percent and price/mix of 3 percent for a segment. What is the correct combined organic revenue growth rate for that segment in the model?

When constructing a pro forma statement of cash flows, which of the following items must be forecasted before you can calculate free cash flow to the firm (FCFF)?

An analyst forecasts a firms gross margin will improve by 100 basis points each year for three years due to favorable price/mix. Which statement aligns with the chapter guidance on margin drivers?

Which of the following best describes the recommended treatment of interest income and interest expense when forecasting net finance costs for a pro forma model?

Which behavioral bias is characterized by insufficiently updating a forecast after receiving new negative information and often results from anchoring to a prior estimate?

An analyst increases the number of inputs and complexity of a revenue model expecting better accuracy, but the model is now overfitted and less robust in stress scenarios. Which bias does this behavior exemplify and what remedy does the chapter recommend?

In Porter’s five forces framework, which force is most directly related to a companys difficulty in raising prices because buyers can switch to many alternative sources easily?

A brewer faces a 10 percent consumer price increase because of higher excise duties. If price elasticity of demand is 0.8, what percent change in volume should the analyst expect, and how should revenue change approximately assuming price is held at the new higher level?

Which cost components should an analyst separate when modeling the effect of commodity price inflation on cost of goods sold?

An analyst wants to mitigate overconfidence in forecasts. Which practice is specifically recommended in the chapter to reduce overconfidence?

Which of the following is the five-way DuPont decomposition of ROE suggested in the module?

In the Remy example, management targeted a 72 percent gross margin by 2030. If current gross margin is 67 percent and the analyst assumes 100 basis points improvement per year, how many years are required to reach the target?

Which of the following statements about capex and depreciation assumptions in a pro forma model reflects the guidance in the chapter?

Which scenario analysis practice did the chapter use to demonstrate the range of possible free cash flows for Remy?

Which of the following best explains the concept of normalized earnings as described in the chapter?

An analyst is selecting a terminal growth rate for a DCF. Which of the following guidelines from the chapter is most appropriate?

Which of the following is a reason the chapter gives for using segment-level forecasts as a check on consolidated forecasts?

When using historical days-of-inventory-on-hand (DOH) to forecast inventories, which reason would justify adjusting DOH downward in the forecast?

Which approach does the chapter recommend for forecasting working capital items like inventory and payables?

If a firm operates in different countries with differing inflation rates, which modeling practice does the chapter recommend for revenue and cost inflation assumptions?

An analyst decomposes ROE into net profit margin, total asset turnover, and leverage. If ROE rose from 8% to 12% while leverage stayed constant, which component most likely increased?

Which of the following is the best explanation of why analysts should be cautious using a firms highest historical growth rates to set long-term terminal growth assumptions?

If an analyst notes a companys DSO falling while DOH increases sharply, what liquidity interpretation does the chapter suggest?

When performing sensitivity analysis on a valuation, which of the following is NOT a primary benefit highlighted in the chapter?

An analyst uses peer average EBIT margins to cross-check a firms forecasted margins. Which bias from the chapter is this practice intended to mitigate?

Which of the following best describes how to treat non-recurring income statement items when forecasting profitability?

In the EuroAlco case, if half of COGS is fixed and half is variable, and volume falls 8 percent due to price increases, what is the percent change in total COGS assuming variable cost moves one-for-one with volume?

What is the recommended way to forecast interest coverage or interest expense covenants for a company with floating-rate debt in the chapter?

Which statement about scenario versus simulation analysis is consistent with the chapter?

In comparing a firms forecasted ROIC to peers, what would persistent ROIC above peers typically indicate according to the chapter?

Which of the following is the recommended handling of share-based compensation in pro forma cash flow forecasts according to the chapter?

If a sector is highly regulated with required capital ratios (e.g., banking), how should an analyst incorporate this into a model according to the module?

An analyst uses linear trend regression of past revenues to estimate normalized revenue for a mature industrial firm. Which caution from the chapter applies?

Which of the following best captures the chapter guidance on handling foreign exchange when forecasting revenues?

What is the chapter's recommended approach if management guidance differs materially from an analysts prior forecast?

Which industry condition would most likely allow a company to fully pass through rising input costs to customers without material volume loss, according to the chapter?

When estimating terminal value using a perpetuity growth model, which base cash flow should the analyst prefer according to chapter recommendations?

Which model choice is most consistent with the chapter when a firm has a temporary inventory build-up caused by a one-off supply disruption?

Which of the following is an example of confirmation bias in analyst research as discussed in the chapter?

An analyst observes that a firms gross margin is highly volatile because a single commodity (25% of COGS) moves sharply. If the commodity price falls 20% next year with volume constant, how should gross margin be expected to change qualitatively according to the example in the chapter?

Which of the following best describes a hybrid forecasting approach as used in the chapter?

If a firms days payable outstanding (DPO) decreases materially in the forecast period, which of the following statements is consistent with the chapter guidance?

Which of the following is an appropriate use of industry-specific ratios in modeling, according to the module?

In the context of modeling inflation, what is one reason the chapter gives for why reported local-currency revenue growth may outpace constant-currency revenue growth?

If an analyst expects a firms operating margin to decline due to increased competitive rivalry and buyer bargaining power, which DuPont factor(s) will most directly reflect this change?

Which of the following is the best implementation of transparency guidance when reporting model outputs as advocated in the chapter?

An analyst is forecasting tax expense for a multinational firm. Which chapter recommendation should guide the analysts choice of effective tax rate?

Which of the following best describes the chapter's view on using Monte Carlo simulation in forecasting models?

Which of the following is the best summary of how to incorporate competitive analysis into financial forecasts as recommended in the chapter?