WALL STREET PREP FINANCIAL STATEMENT
MODELING – 170+ QUESTIONS AND ANSWERS
(2025 UPDATE)
Liquidity Ratios - CORRECT ANSWER ✅✅✅measures of a firm's short-term
ability to meet its current obligations
Profitability Ratios - CORRECT ANSWER ✅✅✅measures of a firm's
profitability relative to its assets (operating efficiency) and to its revenue
(operating profitability)
Activity Ratios - CORRECT ANSWER ✅✅✅Measure of efficiency of a firm's
assets
Solvency Ratios - CORRECT ANSWER ✅✅✅Measure of a firm's ability to
pay its obligations
Inventory Turnover - CORRECT ANSWER ✅✅✅COGS / avg inventory
Receivables Turnover - CORRECT ANSWER ✅✅✅revenue / average
accounts receivable
DSO (Days Sales Outstanding) - CORRECT ANSWER ✅✅✅AR/Credit Sales *
days in period
days in period/receivables turnover
,A/P turnover - CORRECT ANSWER ✅✅✅COGS / Average A/P
PPP (payables purchasing period) - CORRECT ANSWER ✅✅✅days in
period/ Accounts payable turnover
Current Ratio - CORRECT ANSWER ✅✅✅current assets/current liabilities
Quick ratio (acid test) - CORRECT ANSWER ✅✅✅Cash and AR divided by
current liabilities
Gross profit margin - CORRECT ANSWER ✅✅✅gross profit/revenue
operating margin - CORRECT ANSWER ✅✅✅operating profit/revenue
net profit margin - CORRECT ANSWER ✅✅✅net income/revenue
asset turnover - CORRECT ANSWER ✅✅✅revenue/ average assets
return on assets (ROA) - CORRECT ANSWER ✅✅✅Net Income / Average
Assets
return on equity (ROE) - CORRECT ANSWER ✅✅✅net income/ total equity
Basic EPS - CORRECT ANSWER ✅✅✅(Net Income - Preferred
Dividends)/(Weighted Average of Shares Outstanding)
, Diluted EPS - CORRECT ANSWER ✅✅✅diluted net income / weighted
average diluted shares outstanding
dividend yield - CORRECT ANSWER ✅✅✅dividends/net income
debt to EBITDA - CORRECT ANSWER ✅✅✅Total Debt/EBITDA
interest coverage ratio - CORRECT ANSWER ✅✅✅EBIT/ interest expense
fixed charge coverage - CORRECT ANSWER ✅✅✅(EBIT + Lease
charges)/(Interest Payments + Lease charges)
Debt to Total Assets - CORRECT ANSWER ✅✅✅Total Debt/Total Assets
debt to equity - CORRECT ANSWER ✅✅✅total liabilities/total equity
cash from operations (CFO) - CORRECT ANSWER ✅✅✅uses net income as
a starting point and converts accrual base net income into cash flow from
operations via a series of adjustments
cash from investing activities (CFI) - CORRECT ANSWER ✅✅✅capital
expenditures / asset sales and purchases
cash from financing activities (CFF) - CORRECT ANSWER ✅✅✅new
borrowing / pay down of debt / new issuance of stock / share repurchases /
issuance of dividends
working capital - CORRECT ANSWER ✅✅✅-CFO
MODELING – 170+ QUESTIONS AND ANSWERS
(2025 UPDATE)
Liquidity Ratios - CORRECT ANSWER ✅✅✅measures of a firm's short-term
ability to meet its current obligations
Profitability Ratios - CORRECT ANSWER ✅✅✅measures of a firm's
profitability relative to its assets (operating efficiency) and to its revenue
(operating profitability)
Activity Ratios - CORRECT ANSWER ✅✅✅Measure of efficiency of a firm's
assets
Solvency Ratios - CORRECT ANSWER ✅✅✅Measure of a firm's ability to
pay its obligations
Inventory Turnover - CORRECT ANSWER ✅✅✅COGS / avg inventory
Receivables Turnover - CORRECT ANSWER ✅✅✅revenue / average
accounts receivable
DSO (Days Sales Outstanding) - CORRECT ANSWER ✅✅✅AR/Credit Sales *
days in period
days in period/receivables turnover
,A/P turnover - CORRECT ANSWER ✅✅✅COGS / Average A/P
PPP (payables purchasing period) - CORRECT ANSWER ✅✅✅days in
period/ Accounts payable turnover
Current Ratio - CORRECT ANSWER ✅✅✅current assets/current liabilities
Quick ratio (acid test) - CORRECT ANSWER ✅✅✅Cash and AR divided by
current liabilities
Gross profit margin - CORRECT ANSWER ✅✅✅gross profit/revenue
operating margin - CORRECT ANSWER ✅✅✅operating profit/revenue
net profit margin - CORRECT ANSWER ✅✅✅net income/revenue
asset turnover - CORRECT ANSWER ✅✅✅revenue/ average assets
return on assets (ROA) - CORRECT ANSWER ✅✅✅Net Income / Average
Assets
return on equity (ROE) - CORRECT ANSWER ✅✅✅net income/ total equity
Basic EPS - CORRECT ANSWER ✅✅✅(Net Income - Preferred
Dividends)/(Weighted Average of Shares Outstanding)
, Diluted EPS - CORRECT ANSWER ✅✅✅diluted net income / weighted
average diluted shares outstanding
dividend yield - CORRECT ANSWER ✅✅✅dividends/net income
debt to EBITDA - CORRECT ANSWER ✅✅✅Total Debt/EBITDA
interest coverage ratio - CORRECT ANSWER ✅✅✅EBIT/ interest expense
fixed charge coverage - CORRECT ANSWER ✅✅✅(EBIT + Lease
charges)/(Interest Payments + Lease charges)
Debt to Total Assets - CORRECT ANSWER ✅✅✅Total Debt/Total Assets
debt to equity - CORRECT ANSWER ✅✅✅total liabilities/total equity
cash from operations (CFO) - CORRECT ANSWER ✅✅✅uses net income as
a starting point and converts accrual base net income into cash flow from
operations via a series of adjustments
cash from investing activities (CFI) - CORRECT ANSWER ✅✅✅capital
expenditures / asset sales and purchases
cash from financing activities (CFF) - CORRECT ANSWER ✅✅✅new
borrowing / pay down of debt / new issuance of stock / share repurchases /
issuance of dividends
working capital - CORRECT ANSWER ✅✅✅-CFO
