Financial Modeling Final Exam
Questions and Answers 100% Pass
Risk - ✔✔the chance an investment's actual gain will differ from the expected return.
The main types of risk are systematic (tied to the broader market) and unsystematic
(specific to a company or industry) risk.
Return - ✔✔the change in the price of an asset or investment over a period of time. A
positive return means a profit while a negative return means a loss. Returns are often
annualized for comparison purposes, while a holding period return calculates the gain
or loss during the entire period an investment was held.
Liquidity - ✔✔refers to the ease with which an asset can be converted into cash without
affecting its market price. Cash is the most liquid asset of all. The current, quick, and
cash ratios are the most commonly used ratios to measure liquidity.
Capital budgeting - ✔✔the process a business uses to evaluate potential major projects
or investments such as new plants and equipment. This process involves analyzing a
project's cash inflows and outflows to determine whether the expected return meets a
set benchmark. One major method of capital budgeting is DCF analysis.
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, Capital structure - ✔✔the combination of debt and equity used by a company to finance
its overall operations and growth. Equity capital comes from ownership shares in a
company and claims to its future cash flows and profits. Debt comes in the form of
bond issues or loans, while equity may come in the form of common stock, preferred
stock, or retained earnings. The debt to equity ratio is useful in determining the
riskiness of a company's borrowing practices.
Working Capital - ✔✔represents the differences between a company's current assets
and current liabilities. It is a measure of a company's liquidity and short term financial
health. Positive working capital means that a company can fund its current operations
and invest in future activities and growth.
Balance Sheet - ✔✔a financial statement that provides a snapshot of a company's assets,
liabilities, and shareholder equity at a point in time. On the BS, Assets must always
equal Liabilities + Shareholder's Equity.
Income Statement - ✔✔a financial statement that shows a firm's revenue, expenses,
gains, losses, and net income over a period of time (usually a quarter or year). The IS
provides insight into a company's operations, efficiency of management,
underperforming sectors, and relative performance to its peers.
Depreciation - ✔✔an accounting method used to allocate the cost of a tangible asset
over its useful life. It represents how much of an asset's value has been used. The main
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Questions and Answers 100% Pass
Risk - ✔✔the chance an investment's actual gain will differ from the expected return.
The main types of risk are systematic (tied to the broader market) and unsystematic
(specific to a company or industry) risk.
Return - ✔✔the change in the price of an asset or investment over a period of time. A
positive return means a profit while a negative return means a loss. Returns are often
annualized for comparison purposes, while a holding period return calculates the gain
or loss during the entire period an investment was held.
Liquidity - ✔✔refers to the ease with which an asset can be converted into cash without
affecting its market price. Cash is the most liquid asset of all. The current, quick, and
cash ratios are the most commonly used ratios to measure liquidity.
Capital budgeting - ✔✔the process a business uses to evaluate potential major projects
or investments such as new plants and equipment. This process involves analyzing a
project's cash inflows and outflows to determine whether the expected return meets a
set benchmark. One major method of capital budgeting is DCF analysis.
Katelyn Whitman, All Rights Reserved © 2025 1
, Capital structure - ✔✔the combination of debt and equity used by a company to finance
its overall operations and growth. Equity capital comes from ownership shares in a
company and claims to its future cash flows and profits. Debt comes in the form of
bond issues or loans, while equity may come in the form of common stock, preferred
stock, or retained earnings. The debt to equity ratio is useful in determining the
riskiness of a company's borrowing practices.
Working Capital - ✔✔represents the differences between a company's current assets
and current liabilities. It is a measure of a company's liquidity and short term financial
health. Positive working capital means that a company can fund its current operations
and invest in future activities and growth.
Balance Sheet - ✔✔a financial statement that provides a snapshot of a company's assets,
liabilities, and shareholder equity at a point in time. On the BS, Assets must always
equal Liabilities + Shareholder's Equity.
Income Statement - ✔✔a financial statement that shows a firm's revenue, expenses,
gains, losses, and net income over a period of time (usually a quarter or year). The IS
provides insight into a company's operations, efficiency of management,
underperforming sectors, and relative performance to its peers.
Depreciation - ✔✔an accounting method used to allocate the cost of a tangible asset
over its useful life. It represents how much of an asset's value has been used. The main
Katelyn Whitman, All Rights Reserved © 2025 2
