Introduction to Financial Statement Modelling exam questions with answers

Introduction to Financial Statement |\ |\ |\ |\




Modelling exam questions with answers |\ |\ |\ |\




Steps to develop a sales-based pro forma company model
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- CORRECT ANSWERS ✔✔1) Model line items in income
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statement |\




2) Model line items in cash flow statement
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3) Project current line items in balance sheet (AR, AP,
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Inventory)
4) Link all statements together
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Overconfidence - CORRECT ANSWERS ✔✔when people |\ |\ |\ |\ |\ |\



demonstrate unwarranted faith in their own abilities. |\ |\ |\ |\ |\ |\




Impact of overconfidence on analyst forecasts and
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remedies - CORRECT ANSWERS ✔✔- Impact is invividual
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has a higher likelihood of being in correct
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Remedies include |\ |\




- Conduct scenario analysis
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- Record and share their forecasts and review them
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regularly, identifying both the correct and incorrect
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forecasts they have made. |\ |\ |\

, Illusion of control - CORRECT ANSWERS ✔✔a tendency by
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people to overestimate their ability to control events
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Impact of illusion of control on analyst forecasts and
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remedies - CORRECT ANSWERS ✔✔- Impact is that
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individual may overcomplicate their model through
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making it too granular |\ |\ |\




Remedies include |\ |\




- restricting modeling variables to those that are regularly
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disclosed by the company
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- focusing on the most important or impactful variables,
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and |\




- speaking only with those who are likely to have unique
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or significant perspectives.
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Conservatism bias - CORRECT ANSWERS ✔✔where people |\ |\ |\ |\ |\ |\



maintain their prior views or forecasts by inadequately
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incorporating new information. |\ |\




Impact of conservatism bias on analyst forecasts and
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remedies - CORRECT ANSWERS ✔✔- Impact is analysts
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fails to incorporate new information to their model
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