CFI CBCA 2026/2027 Exam Review
Questions And Verified Answers
Course Objectives - ANSWER--Understand the components that go into financial
analysis
-Calculate the key performance ratios that credit professionals use to assess a
company's profitability and efficiency
-Calculate the key financial ratios used to assess a company's liquidity, leverage, and
coverage
-Undertake a vertical analysis to determine profitability from the income statement and
proportionality from the balance sheet
-Undertake horizontal analysis to spot trends and analyze their meaning
-Perform industry benchmarking
Vertical & Horizontal Analysis - ANSWER-Financial Analysis Overview
Financial analysis includes a number of steps to - ANSWER-get a complete picture of
the performance of a company. The starting point is the company's financial statements.
Ratio analysis is great for - ANSWER-understanding the relationship between the
income statement and the balance sheet.
Performing Financial Analysis
Financial analysis must be undertaken with - ANSWER-an end-purpose in mind. This
will influence how you conduct and interpret your analysis.
Credit Analyst - ANSWER--Understand a company's overall financial health and a
borrower's credit risk
-A company's ability to service credit obligations and how to mitigate loan loss in a
default scenario
Trend & Ratio Analysis - ANSWER-Basic Ratio Analysis
Adjusting Ratios for Distortion
Complex Adjustments
Financial analysis is frequently conducted within the context of a specific borrowing
request. Lenders must - ANSWER-overlay the proposed credit facilities and loan terms
on top of financial results to see how financial metrics are impacted.
A credit professional may conduct the analysis using - ANSWER-actual
current/historical results, as well as using projected operating results.
There are two forms of financial analysis - ANSWER-Vertical Analysis and Horizontal
Analysis
,Vertical Analysis - ANSWER-• Proportional point of view
• Compares line items in a financial statement to a base figure (e.g. express line items
as % of revenue)
• Can be used with the income statement to understand profitability
• Can be used with the balance sheet to understand asset/liability structure
• Helps benchmark externally
• Helps benchmark against internal thresholds which flow through to a risk rating
• Ratios can be compared to industry performance
• Set expectations and see if ratios fall within expectations
• If ratios fall outside of expectations, they will help you ask questions of your client
Horizontal Analysis - ANSWER-• Provides context both within the company's own
performance and through comparisons with peer groups
• Looks at trends in financial statements
• Benchmarks trends internally and externally against peers across a time period
• Combining with vertical analysis provides more useful information
• Allows for consideration of liquidity, solvency, and leverage ratios
Example: Company A has positive revenue growth of 5% year-over-year
• A good indicator, unless the industry was outperforming it year-over-year
• Raises questions about sustainability, competitive advantage, and strategy
• What is their strategy to improve their competitive advantage?
• What threats have they identified and how are they mitigating them?
Analyzing credit means - ANSWER-identifying risk to repayment capacity. Falling
behind industry trends can be indicative of a company in decline
Ratio Analysis - ANSWER-Performance Ratios
Financial Ratios
Performance Ratios
How profitable a company is and how efficiently it is being run - ANSWER-Profitability
Ratios
Efficiency Ratios
Financial Ratios
Financial condition of the company; liquidity, solvency, and how operating cash flow
covers principal & interest obligations - ANSWER-Coverage
Leverage
Liquidity
Breaking down the income statement - ANSWER-Sales Revenue
Cost of Good Sold
Gross Profit
Indirect Costs
Research & Development
, Marketing & Sales
Sales Revenue - ANSWER-is the lifeblood of the income statement and is used in
several of the ratios seen throughout the module.
Cost of Good Sold - ANSWER-relates to direct labor and raw materials needed to
create the product or service that is being sold, as well as depreciation on
manufacturing equipment used in production.
Gross Profit - ANSWER-is what remains to fund the rest of the business' indirect costs,
after paying the costs that were directly related to what was sold.
Indirect Costs - ANSWER-are those expenses required to run the business. The most
common are research & development, marketing, sales, and general & administration.
Research & Development - ANSWER-represent costs required to keep up with or stay
ahead of the competition.
Marketing & Sales - ANSWER-represent costs required to get products or services out
to customers (e.g., advertising).
Breakdown of income statement - ANSWER-Sales Revenue
Direct Costs
Gross Profit
Research & Development
Marketing
Sales
Depreciation & Amortization
General & Administration
Income from Ops.
Interest Inc./Exp.
Taxes
Net Income
General & Admin. - ANSWER-represent costs that cannot be allocated elsewhere (e.g.,
legal & accounting salaries).
Depreciation & Amortization - ANSWER-unrelated to cost of sales also appear as part
of G&A.
Operating Income/Profit - ANSWER-is used to pay the government, creditors, and
shareholders.
Interest Inc./Exp. - ANSWER-may be generated or paid, depending on if the co. invests
in fixed income securities or takes on debt.
Questions And Verified Answers
Course Objectives - ANSWER--Understand the components that go into financial
analysis
-Calculate the key performance ratios that credit professionals use to assess a
company's profitability and efficiency
-Calculate the key financial ratios used to assess a company's liquidity, leverage, and
coverage
-Undertake a vertical analysis to determine profitability from the income statement and
proportionality from the balance sheet
-Undertake horizontal analysis to spot trends and analyze their meaning
-Perform industry benchmarking
Vertical & Horizontal Analysis - ANSWER-Financial Analysis Overview
Financial analysis includes a number of steps to - ANSWER-get a complete picture of
the performance of a company. The starting point is the company's financial statements.
Ratio analysis is great for - ANSWER-understanding the relationship between the
income statement and the balance sheet.
Performing Financial Analysis
Financial analysis must be undertaken with - ANSWER-an end-purpose in mind. This
will influence how you conduct and interpret your analysis.
Credit Analyst - ANSWER--Understand a company's overall financial health and a
borrower's credit risk
-A company's ability to service credit obligations and how to mitigate loan loss in a
default scenario
Trend & Ratio Analysis - ANSWER-Basic Ratio Analysis
Adjusting Ratios for Distortion
Complex Adjustments
Financial analysis is frequently conducted within the context of a specific borrowing
request. Lenders must - ANSWER-overlay the proposed credit facilities and loan terms
on top of financial results to see how financial metrics are impacted.
A credit professional may conduct the analysis using - ANSWER-actual
current/historical results, as well as using projected operating results.
There are two forms of financial analysis - ANSWER-Vertical Analysis and Horizontal
Analysis
,Vertical Analysis - ANSWER-• Proportional point of view
• Compares line items in a financial statement to a base figure (e.g. express line items
as % of revenue)
• Can be used with the income statement to understand profitability
• Can be used with the balance sheet to understand asset/liability structure
• Helps benchmark externally
• Helps benchmark against internal thresholds which flow through to a risk rating
• Ratios can be compared to industry performance
• Set expectations and see if ratios fall within expectations
• If ratios fall outside of expectations, they will help you ask questions of your client
Horizontal Analysis - ANSWER-• Provides context both within the company's own
performance and through comparisons with peer groups
• Looks at trends in financial statements
• Benchmarks trends internally and externally against peers across a time period
• Combining with vertical analysis provides more useful information
• Allows for consideration of liquidity, solvency, and leverage ratios
Example: Company A has positive revenue growth of 5% year-over-year
• A good indicator, unless the industry was outperforming it year-over-year
• Raises questions about sustainability, competitive advantage, and strategy
• What is their strategy to improve their competitive advantage?
• What threats have they identified and how are they mitigating them?
Analyzing credit means - ANSWER-identifying risk to repayment capacity. Falling
behind industry trends can be indicative of a company in decline
Ratio Analysis - ANSWER-Performance Ratios
Financial Ratios
Performance Ratios
How profitable a company is and how efficiently it is being run - ANSWER-Profitability
Ratios
Efficiency Ratios
Financial Ratios
Financial condition of the company; liquidity, solvency, and how operating cash flow
covers principal & interest obligations - ANSWER-Coverage
Leverage
Liquidity
Breaking down the income statement - ANSWER-Sales Revenue
Cost of Good Sold
Gross Profit
Indirect Costs
Research & Development
, Marketing & Sales
Sales Revenue - ANSWER-is the lifeblood of the income statement and is used in
several of the ratios seen throughout the module.
Cost of Good Sold - ANSWER-relates to direct labor and raw materials needed to
create the product or service that is being sold, as well as depreciation on
manufacturing equipment used in production.
Gross Profit - ANSWER-is what remains to fund the rest of the business' indirect costs,
after paying the costs that were directly related to what was sold.
Indirect Costs - ANSWER-are those expenses required to run the business. The most
common are research & development, marketing, sales, and general & administration.
Research & Development - ANSWER-represent costs required to keep up with or stay
ahead of the competition.
Marketing & Sales - ANSWER-represent costs required to get products or services out
to customers (e.g., advertising).
Breakdown of income statement - ANSWER-Sales Revenue
Direct Costs
Gross Profit
Research & Development
Marketing
Sales
Depreciation & Amortization
General & Administration
Income from Ops.
Interest Inc./Exp.
Taxes
Net Income
General & Admin. - ANSWER-represent costs that cannot be allocated elsewhere (e.g.,
legal & accounting salaries).
Depreciation & Amortization - ANSWER-unrelated to cost of sales also appear as part
of G&A.
Operating Income/Profit - ANSWER-is used to pay the government, creditors, and
shareholders.
Interest Inc./Exp. - ANSWER-may be generated or paid, depending on if the co. invests
in fixed income securities or takes on debt.
