FINANCIAL EDGE EXAM SCRIPT 2025/2026 QUESTIONS
AND SOLUTION RATED A+
✔✔Selling, General, and Administrative Expenses (SG&A) - ✔✔They are costs that are
associated with support the business but are not in the business/factory itself
e.g payroll or marketing
✔✔Interest/finance expense - ✔✔Paying interest on debts owed i.e if you've taken out a
loan.
✔✔Tax Expense - ✔✔Paying the government
✔✔Operating Profit - Income statement - ✔✔the profit that a company generates off of a
good or service.
Components:
1) EBIT
2) Non-recurring
3) Non-core
4) Non-controlled
NB: Still Excludes tax and interest expenses
Operating Profit: Sales - All operating expenses (includes things like marketing or
research and development),
does NOT include tax and interest EXPENSES
NOR interest or tax INCOME
Do not add on 'net income' for example either
✔✔Dirtying effects included in Operating Profit - Income Statement - ✔✔1) EBIT
2) Non-recurring costs
e.g corporate restructuring. This won't happen again and so shouldn't be considered if
trying to forecast a company's profits next year
3) Non-core
e.g rent profit received from owning a building/shop. Even though this contributes to
their profit, a company like apple is not a portfolio manager and so this shouldn't be
considered when assessing their profitability of their core products.
4) Non-controlled
Again using apple as an example, they have a lot of money and they may invest this
and receive income. They are not investors primarily so this should not be considered in
profitability of their core products.
, NB: Removing Dirtying effects is the opposite, you must add them back on. 'Dirtying
effect' means that these are excess charges that need to be added back
✔✔EBIT - ✔✔Earning before interest and tax
When a company doesn't have any dirtying effects this can often be the same numerical
value as operating profit.
When wanting to find the EBIT alone you may find that you add the values of the
dirtying effects BACK into the operating income because these costs should not be
removed since they don't always happen.
The dirtying effects will mean there are added COSTS that reduce the overall figure
from what it should be
NB: One of costs that come under the category of interest or tax should also be ignored
i.e "Interest expense includes a finance penalty of 1000" would be ignored since EBIT
does not take into account interest
Do NOT add interest or tax INCOME to this figure (they are not operating costs), the
same way you SHOULDN'T include the income or tax EXPENSES.
Ignore income figures as well
✔✔EBITDA - ✔✔Earnings before interest, taxes, depreciation, and amortisation
✔✔Amortisation - ✔✔The process of spreading the repayment of a loan, or the cost of
an intangible asset, over a specific timeframe.
✔✔Net Income - Income Statement - ✔✔Total Revenues - Total Expenses
✔✔Operating Working Capital - Balance sheet - ✔✔Finds out if a company can pay its
bills
current assets - current liabilities
Or
Accounts receivable - Accounts payable
NB: assets includes cash as well
✔✔Positive Working capital - Balance Sheet - ✔✔The firm's current assets are large
enough to pay off current liabilities.
Current assets > current liabilities
AND SOLUTION RATED A+
✔✔Selling, General, and Administrative Expenses (SG&A) - ✔✔They are costs that are
associated with support the business but are not in the business/factory itself
e.g payroll or marketing
✔✔Interest/finance expense - ✔✔Paying interest on debts owed i.e if you've taken out a
loan.
✔✔Tax Expense - ✔✔Paying the government
✔✔Operating Profit - Income statement - ✔✔the profit that a company generates off of a
good or service.
Components:
1) EBIT
2) Non-recurring
3) Non-core
4) Non-controlled
NB: Still Excludes tax and interest expenses
Operating Profit: Sales - All operating expenses (includes things like marketing or
research and development),
does NOT include tax and interest EXPENSES
NOR interest or tax INCOME
Do not add on 'net income' for example either
✔✔Dirtying effects included in Operating Profit - Income Statement - ✔✔1) EBIT
2) Non-recurring costs
e.g corporate restructuring. This won't happen again and so shouldn't be considered if
trying to forecast a company's profits next year
3) Non-core
e.g rent profit received from owning a building/shop. Even though this contributes to
their profit, a company like apple is not a portfolio manager and so this shouldn't be
considered when assessing their profitability of their core products.
4) Non-controlled
Again using apple as an example, they have a lot of money and they may invest this
and receive income. They are not investors primarily so this should not be considered in
profitability of their core products.
, NB: Removing Dirtying effects is the opposite, you must add them back on. 'Dirtying
effect' means that these are excess charges that need to be added back
✔✔EBIT - ✔✔Earning before interest and tax
When a company doesn't have any dirtying effects this can often be the same numerical
value as operating profit.
When wanting to find the EBIT alone you may find that you add the values of the
dirtying effects BACK into the operating income because these costs should not be
removed since they don't always happen.
The dirtying effects will mean there are added COSTS that reduce the overall figure
from what it should be
NB: One of costs that come under the category of interest or tax should also be ignored
i.e "Interest expense includes a finance penalty of 1000" would be ignored since EBIT
does not take into account interest
Do NOT add interest or tax INCOME to this figure (they are not operating costs), the
same way you SHOULDN'T include the income or tax EXPENSES.
Ignore income figures as well
✔✔EBITDA - ✔✔Earnings before interest, taxes, depreciation, and amortisation
✔✔Amortisation - ✔✔The process of spreading the repayment of a loan, or the cost of
an intangible asset, over a specific timeframe.
✔✔Net Income - Income Statement - ✔✔Total Revenues - Total Expenses
✔✔Operating Working Capital - Balance sheet - ✔✔Finds out if a company can pay its
bills
current assets - current liabilities
Or
Accounts receivable - Accounts payable
NB: assets includes cash as well
✔✔Positive Working capital - Balance Sheet - ✔✔The firm's current assets are large
enough to pay off current liabilities.
Current assets > current liabilities
