Financial Modeling Finals Review Questions
With Correct Answers
What is working capital?- CORRECT ANSWER-✔✔✅It's the measure of a company's
current assets minus its current liabilities
What does working capital mean? High and low? - CORRECT ANSWER-✔✔✅It's a measure
of the short term efficiency of a company, measuring its ability to cover potential short
term issues
What is operating working capital?- CORRECT ANSWER-✔✔✅It is the current assets less
current liabilities, but without cash and cash equivalents or debt
How does working capital differ from operating working capital? - CORRECT ANSWER-
✔✔✅In operating working capital there is no cash equivalents or debt
Why is operating working capital more useful than working capital when modeling and
analyzing?- CORRECT ANSWER-✔✔✅OWC focuses on the working capital line items that
are most directly related to the company's operations
What's the formula for A/R Days?- CORRECT ANSWER-✔✔✅Accounts Receivable /
Revenue * 360 is the basic answer, with the extended being the average of AR over
two years divided by the most current year
What's the formula for Accrued Expenses days? - CORRECT ANSWER-✔✔✅Accrued
Expenses / Operating Expenses *360
What's the formula to project A/R when using days metric? - CORRECT ANSWER-
✔✔✅Accounts Receivable Days / 360 * Revenue
How do you project accrued expenses when using the days metric? - CORRECT ANSWER-
✔✔✅Accrued Expenses Days / 360 * Operating Expenses
How does an A/R increase of $15 flow through the income statement, balance sheet,
and cash flow statement? Taxes?- CORRECT ANSWER-✔✔✅Income statement:
Revenue increases by $15
Tax effect is -$6
Net income increases by $9
Cash Flow Statement:
Net Income increases by $9
AR decreases by 15
Total Cash decreases by $6
Balance Sheet:
Total Cash decreases by $6
AR increases by $15
Retained Earnings increases by $9
How does an A/R decrease flow through the income statement, balance sheet, and
cash flow statement?- CORRECT ANSWER-✔✔✅Income Statement:
No change
Cash Flow Statement:
AR increases by $15
With Correct Answers
What is working capital?- CORRECT ANSWER-✔✔✅It's the measure of a company's
current assets minus its current liabilities
What does working capital mean? High and low? - CORRECT ANSWER-✔✔✅It's a measure
of the short term efficiency of a company, measuring its ability to cover potential short
term issues
What is operating working capital?- CORRECT ANSWER-✔✔✅It is the current assets less
current liabilities, but without cash and cash equivalents or debt
How does working capital differ from operating working capital? - CORRECT ANSWER-
✔✔✅In operating working capital there is no cash equivalents or debt
Why is operating working capital more useful than working capital when modeling and
analyzing?- CORRECT ANSWER-✔✔✅OWC focuses on the working capital line items that
are most directly related to the company's operations
What's the formula for A/R Days?- CORRECT ANSWER-✔✔✅Accounts Receivable /
Revenue * 360 is the basic answer, with the extended being the average of AR over
two years divided by the most current year
What's the formula for Accrued Expenses days? - CORRECT ANSWER-✔✔✅Accrued
Expenses / Operating Expenses *360
What's the formula to project A/R when using days metric? - CORRECT ANSWER-
✔✔✅Accounts Receivable Days / 360 * Revenue
How do you project accrued expenses when using the days metric? - CORRECT ANSWER-
✔✔✅Accrued Expenses Days / 360 * Operating Expenses
How does an A/R increase of $15 flow through the income statement, balance sheet,
and cash flow statement? Taxes?- CORRECT ANSWER-✔✔✅Income statement:
Revenue increases by $15
Tax effect is -$6
Net income increases by $9
Cash Flow Statement:
Net Income increases by $9
AR decreases by 15
Total Cash decreases by $6
Balance Sheet:
Total Cash decreases by $6
AR increases by $15
Retained Earnings increases by $9
How does an A/R decrease flow through the income statement, balance sheet, and
cash flow statement?- CORRECT ANSWER-✔✔✅Income Statement:
No change
Cash Flow Statement:
AR increases by $15
