Wall Street Prep Financial Statement Modeling Exam 200 Practice Questions ..
Wall Street Prep Financial Statement Modeling Exam: 180 Practice Questions
SECTION 1: FINANCIAL STATEMENT MODELING FUNDAMENTALS (Q1-30)
Question 1
What is the primary purpose of financial statement modeling?
A) To predict future stock prices
B) To analyze a company's historical financial performance only
C) To estimate future financial performance and support valuation
D) To comply with SEC reporting regulations
Answer: C
Rationale: Financial statement modeling integrates income statement, balance
sheet, and cash flow forecasts in a dynamic, linked structure used for valuation,
M&A, and corporate finance decisions. It is not designed for compliance nor
macroeconomic forecasting.
Question 2
,In a three-statement financial model, which statement is typically completed
first?
A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) Statement of Shareholders' Equity
Answer: B
Rationale: The income statement is typically the starting point for a three-
statement model because it drives the projections for the balance sheet and cash
flow statement. Revenue, operating expenses, and net income flow into the other
statements.
Question 3
Which of the following is NOT one of the primary financial statements used in
financial modeling?
A) Income Statement
,B) Balance Sheet
C) Statement of Cash Flows
D) Statement of Retained Earnings
Answer: D
Rationale: The three primary financial statements used in financial modeling are
the Income Statement, Balance Sheet, and Statement of Cash Flows. The
Statement of Retained Earnings is a supporting schedule, not a primary
statement.
Question 4
What is the "plowback ratio"?
A) The percentage of earnings paid out as dividends
B) The percentage of earnings retained and reinvested in the business
C) The ratio of debt to equity
D) The ratio of current assets to current liabilities
Answer: B
, Rationale: The plowback ratio (or retention ratio) is the percentage of earnings
retained and reinvested in the business rather than paid out as dividends. It is
calculated as (Net Income - Dividends) / Net Income.
Question 5
What is the purpose of a "sources and uses" schedule in a financial model?
A) To calculate depreciation expense
B) To detail where funds come from and how they are spent in a transaction
C) To forecast revenue growth
D) To calculate tax expense
Answer: B
Rationale: A sources and uses schedule details the sources of funding (debt,
equity, cash) and the uses of those funds (purchase price, fees, debt repayment)
in a transaction such as an acquisition or buyout.
Question 6
Wall Street Prep Financial Statement Modeling Exam: 180 Practice Questions
SECTION 1: FINANCIAL STATEMENT MODELING FUNDAMENTALS (Q1-30)
Question 1
What is the primary purpose of financial statement modeling?
A) To predict future stock prices
B) To analyze a company's historical financial performance only
C) To estimate future financial performance and support valuation
D) To comply with SEC reporting regulations
Answer: C
Rationale: Financial statement modeling integrates income statement, balance
sheet, and cash flow forecasts in a dynamic, linked structure used for valuation,
M&A, and corporate finance decisions. It is not designed for compliance nor
macroeconomic forecasting.
Question 2
,In a three-statement financial model, which statement is typically completed
first?
A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) Statement of Shareholders' Equity
Answer: B
Rationale: The income statement is typically the starting point for a three-
statement model because it drives the projections for the balance sheet and cash
flow statement. Revenue, operating expenses, and net income flow into the other
statements.
Question 3
Which of the following is NOT one of the primary financial statements used in
financial modeling?
A) Income Statement
,B) Balance Sheet
C) Statement of Cash Flows
D) Statement of Retained Earnings
Answer: D
Rationale: The three primary financial statements used in financial modeling are
the Income Statement, Balance Sheet, and Statement of Cash Flows. The
Statement of Retained Earnings is a supporting schedule, not a primary
statement.
Question 4
What is the "plowback ratio"?
A) The percentage of earnings paid out as dividends
B) The percentage of earnings retained and reinvested in the business
C) The ratio of debt to equity
D) The ratio of current assets to current liabilities
Answer: B
, Rationale: The plowback ratio (or retention ratio) is the percentage of earnings
retained and reinvested in the business rather than paid out as dividends. It is
calculated as (Net Income - Dividends) / Net Income.
Question 5
What is the purpose of a "sources and uses" schedule in a financial model?
A) To calculate depreciation expense
B) To detail where funds come from and how they are spent in a transaction
C) To forecast revenue growth
D) To calculate tax expense
Answer: B
Rationale: A sources and uses schedule details the sources of funding (debt,
equity, cash) and the uses of those funds (purchase price, fees, debt repayment)
in a transaction such as an acquisition or buyout.
Question 6
