CORPORATE FINANCE & FINANCIAL RATIOS FOR INVESTMENT ANALYSIS EXAM ACTUAL QUESTIONS AND CORRECT ANSWERS

CORPORATE FINANCE &
FINANCIAL RATIOS FOR
INVESTMENT ANALYSIS EXAM
ACTUAL QUESTIONS AND
CORRECT ANSWERS

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EXAM SPECIFICATIONS

Time Allocation: 3 Hours


Total Questions: 80 Questions


Question Format: Multiple Choice, Calculations, Analysis


Minimum Competency: 75% Required to Pass


Core Focus: Ratios, Valuation, Capital Budgeting, WACC, Financial Statements




Corporate Finance & Financial Ratios Investment Analysis Exam Page 1

, Exam Overview & Content Outline

EXAM PURPOSE

Corporate Finance & Financial Ratios for Investment Analysis Exam covers financial statement
analysis, ratio analysis, time value of money, capital budgeting, cost of capital, and valuation methods
for investment decision-making per current CFA and corporate finance standards.

CONTENT DISTRIBUTION

• Financial Statement Analysis (25%) — Income statement, balance sheet, cash flow,
common-size analysis

• Financial Ratios (30%) — Liquidity, solvency, profitability, efficiency, market ratios

• Time Value & Capital Budgeting (25%) — NPV, IRR, payback, PI, WACC, cost of capital

• Valuation & Investment (20%) — DCF, multiples, CAPM, beta, dividend models, risk analysis

QUESTION FORMAT & SCORING

Each item presents four options with calculations. Correct answers are highlighted in green with
checkmark (✓). Every question includes detailed solution with formulas. Requires 75% to pass.

STUDY STRATEGY

Master financial statement relationships. Know all ratio formulas and interpretations. Understand
NPV, IRR, and payback calculations. Study WACC components. Review DCF and relative valuation.
Practice TVM problems. Know CAPM and beta. Understand working capital management.

CURRICULUM ALIGNMENT

Questions reflect current standards: CFA Institute curriculum, Corporate Finance Institute,
GAAP/IFRS, and investment analysis best practices for financial decision-making.




Corporate Finance & Financial Ratios Investment Analysis Exam Page 2

, SECTION I: Financial Statement Analysis
1. Current Ratio = Current Assets / Current Liabilities. CA $500K, CL $250K. Ratio =
A. 0.5
✓ B. 2.0
C. 1.0
D. 250
Rationale: Current Ratio = Current Assets / Current Liabilities = 500,,000 = 2.0. Measures
short-term liquidity. Ratio >1 indicates ability to pay short-term obligations. 2.0 is healthy. <1 indicates
liquidity problems. Quick Ratio = (CA - Inventory) / CL. Cash Ratio = Cash / CL.


2. Debt-to-Equity Ratio = Total Debt / Total Equity. Debt $600K, Equity $400K. D/E =
A. 0.67
✓ B. 1.5
C. 2.5
D. 0.4
Rationale: D/E = Total Debt / Total Equity = 600,,000 = 1.5. Measures financial leverage and
solvency. Higher ratio = more leverage, higher risk. 1.5 means $1.50 debt for every $1 equity. Debt Ratio =
Total Debt / Total Assets. Equity Ratio = Total Equity / Total Assets. Industry comparison important.


3. Return on Equity (ROE) = Net Income / Avg Shareholders' Equity. NI $100K, Avg Equity
$500K. ROE =
A. 5%
✓ B. 20%
C. 50%
D. 500%
Rationale: ROE = Net Income / Average Shareholders' Equity = 100,,000 = 0.20 = 20%. Measures
return generated on shareholders' investment. DuPont: ROE = Profit Margin × Asset Turnover × Equity
Multiplier. Higher ROE generally better. Compare to industry and cost of equity.


4. Inventory Turnover = COGS / Avg Inventory. COGS $1.2M, Avg Inv $200K. Turnover =
A. 0.17
✓ B. 6.0
C. 12.0
D. 240
Rationale: Inventory Turnover = COGS / Average Inventory = 1,200,,000 = 6.0 times. Days in
Inventory = 365 / Turnover = = 60.8 days. Higher turnover = efficient inventory management. Too
high may indicate stockouts. Industry varies: grocery high, jewelry low.


5. Net Profit Margin = Net Income / Revenue. NI $50K, Revenue $500K. Margin =
A. 5%
✓ B. 10%


Corporate Finance & Financial Ratios Investment Analysis Exam Page 3