WALL STREET PREP ACCOUNTING
CRASH COURSE EXAMINATION TEST
PAPER QUESTIONS SOLUTIONS
GRADED A+
◉ Operating Margin. Answer: EBIT ÷ Net Revenues; operating
profitability before interest and taxes.
◉ Net Profit Margin. Answer: Net Income ÷ Net Revenues; bottom-line
profitability after all expenses.
◉ Return on Equity (ROE). Answer: Net Income ÷ Average
Shareholders' Equity; profitability relative to shareholder investment.
◉ Return on Assets (ROA). Answer: Net Income ÷ Average Total
Assets; efficiency in generating profit from assets.
◉ Return on Invested Capital (ROIC). Answer: NOPAT ÷ Invested
Capital; effectiveness of capital allocation.
◉ Current Ratio. Answer: Current Assets ÷ Current Liabilities; ability to
meet short-term obligations.
,◉ Quick Ratio. Answer: (Current Assets - Inventory) ÷ Current
Liabilities; stricter liquidity measure.
◉ Cash Ratio. Answer: Cash ÷ Current Liabilities; most conservative
liquidity measure.
◉ Debt-to-Equity Ratio. Answer: Total Debt ÷ Total Equity; level of
financial leverage.
◉ Debt-to-Assets Ratio. Answer: Total Debt ÷ Total Assets; % of assets
financed by debt.
◉ Interest Coverage (Times Interest Earned). Answer: EBIT ÷ Interest
Expense; ability to pay interest.
◉ Asset Turnover. Answer: Net Sales ÷ Average Total Assets; efficiency
in using assets to generate sales.
◉ Inventory Turnover. Answer: COGS ÷ Average Inventory; speed of
selling inventory.
◉ Accounts Receivable Turnover. Answer: Net Credit Sales ÷ Average
A/R; speed of collecting receivables.
,◉ Days Sales Outstanding (DSO). Answer: (A/R ÷ Sales) × 365;
average collection period.
◉ EPS (Earnings per Share). Answer: Net Income ÷ Weighted Average
Shares Outstanding.
◉ P/E Ratio. Answer: Price ÷ EPS; measures investor expectations
relative to earnings.
◉ Price-to-Book (P/B) Ratio. Answer: Price ÷ Book Value per Share;
compares market to accounting value.
◉ EV (Enterprise Value). Answer: Market Cap + Debt - Cash; value of
the entire firm.
◉ EV/EBITDA. Answer: Enterprise Value ÷ EBITDA; common
multiple for comparing firms regardless of capital structure.
◉ EV/EBIT. Answer: Enterprise Value ÷ EBIT; includes depreciation
impact.
◉ Price-to-Sales (P/S) Ratio. Answer: Price ÷ Revenue per Share; useful
when earnings are negative.
, ◉ Why adjust EBITDA?. Answer: To exclude one-time, unusual, or
non-cash items for comparability.
◉ Why adjust EPS?. Answer: To focus on "core" earnings and exclude
unusual charges.
◉ What is normalized earnings?. Answer: Adjusted net income that
excludes extraordinary, cyclical, or one-off items.
◉ Why use multiples instead of raw ratios?. Answer: They allow direct
valuation comparisons across companies and industries.
◉ Why compare valuation multiples to peers?. Answer: To judge
whether a company is overvalued or undervalued relative to its sector.
◉ What is the danger of relying only on multiples?. Answer: They
ignore company-specific fundamentals and cash flows.
◉ What are the two main types of pension plans?. Answer: Defined
Benefit (DB) plans and Defined Contribution (DC) plans.
◉ What is a Defined Benefit plan?. Answer: Employer promises a
specific retirement benefit, based on salary/years of service.
CRASH COURSE EXAMINATION TEST
PAPER QUESTIONS SOLUTIONS
GRADED A+
◉ Operating Margin. Answer: EBIT ÷ Net Revenues; operating
profitability before interest and taxes.
◉ Net Profit Margin. Answer: Net Income ÷ Net Revenues; bottom-line
profitability after all expenses.
◉ Return on Equity (ROE). Answer: Net Income ÷ Average
Shareholders' Equity; profitability relative to shareholder investment.
◉ Return on Assets (ROA). Answer: Net Income ÷ Average Total
Assets; efficiency in generating profit from assets.
◉ Return on Invested Capital (ROIC). Answer: NOPAT ÷ Invested
Capital; effectiveness of capital allocation.
◉ Current Ratio. Answer: Current Assets ÷ Current Liabilities; ability to
meet short-term obligations.
,◉ Quick Ratio. Answer: (Current Assets - Inventory) ÷ Current
Liabilities; stricter liquidity measure.
◉ Cash Ratio. Answer: Cash ÷ Current Liabilities; most conservative
liquidity measure.
◉ Debt-to-Equity Ratio. Answer: Total Debt ÷ Total Equity; level of
financial leverage.
◉ Debt-to-Assets Ratio. Answer: Total Debt ÷ Total Assets; % of assets
financed by debt.
◉ Interest Coverage (Times Interest Earned). Answer: EBIT ÷ Interest
Expense; ability to pay interest.
◉ Asset Turnover. Answer: Net Sales ÷ Average Total Assets; efficiency
in using assets to generate sales.
◉ Inventory Turnover. Answer: COGS ÷ Average Inventory; speed of
selling inventory.
◉ Accounts Receivable Turnover. Answer: Net Credit Sales ÷ Average
A/R; speed of collecting receivables.
,◉ Days Sales Outstanding (DSO). Answer: (A/R ÷ Sales) × 365;
average collection period.
◉ EPS (Earnings per Share). Answer: Net Income ÷ Weighted Average
Shares Outstanding.
◉ P/E Ratio. Answer: Price ÷ EPS; measures investor expectations
relative to earnings.
◉ Price-to-Book (P/B) Ratio. Answer: Price ÷ Book Value per Share;
compares market to accounting value.
◉ EV (Enterprise Value). Answer: Market Cap + Debt - Cash; value of
the entire firm.
◉ EV/EBITDA. Answer: Enterprise Value ÷ EBITDA; common
multiple for comparing firms regardless of capital structure.
◉ EV/EBIT. Answer: Enterprise Value ÷ EBIT; includes depreciation
impact.
◉ Price-to-Sales (P/S) Ratio. Answer: Price ÷ Revenue per Share; useful
when earnings are negative.
, ◉ Why adjust EBITDA?. Answer: To exclude one-time, unusual, or
non-cash items for comparability.
◉ Why adjust EPS?. Answer: To focus on "core" earnings and exclude
unusual charges.
◉ What is normalized earnings?. Answer: Adjusted net income that
excludes extraordinary, cyclical, or one-off items.
◉ Why use multiples instead of raw ratios?. Answer: They allow direct
valuation comparisons across companies and industries.
◉ Why compare valuation multiples to peers?. Answer: To judge
whether a company is overvalued or undervalued relative to its sector.
◉ What is the danger of relying only on multiples?. Answer: They
ignore company-specific fundamentals and cash flows.
◉ What are the two main types of pension plans?. Answer: Defined
Benefit (DB) plans and Defined Contribution (DC) plans.
◉ What is a Defined Benefit plan?. Answer: Employer promises a
specific retirement benefit, based on salary/years of service.