FINANCIAL EDGE FINAL PAPER 2025/2026 QUESTIONS
AND SOLUTION RATED A+
✔✔Residual Claim - Shareholder - Balance sheet - ✔✔the last in line of all those who
have a claim on the assets and income of the corporation
✔✔Leverage Effect - Balance sheet - ✔✔using borrowed money—specifically, the use
of various financial instruments or borrowed capital—to increase the potential return of
an investment.
Debt stays the same but the value of equity goes up if the asset goes up in value
✔✔Net debt - Income statement - ✔✔Total Debt - Cash & Equivalents
Equivalents can include things such as INVESTMENTS
NB: On a balance sheet the Total debt will be outlined, do NOT assume liabilities to be
debt nor accounts payable - That is for the balance sheet which outlines assets
✔✔EBITDA based leverage - Balance sheet - ✔✔Net Debt / EBITDA
Tests the ability to repay debt
✔✔Asset based leverage - Balance sheet - ✔✔Debt / Equity
Measure of non-equity finance to equity finance
✔✔Interest Cover - Balance sheet - ✔✔EBITDA / interest expense
Tests the ability to pay finance costs
✔✔BASE analysis - Forecasting Retained Earnings - Cash flow statement - ✔✔1)
Beginning
The beginning value of the retained earnings
2) Addition
Net income can cause the retained earnings to go up
3) Subtraction
Paying dividends out to shareholder and debt holders can cause the retained earnings
value to fall/decrease
4) Ending
The final value after adding net income and subtracting the dividends that were payed
out
, ✔✔Cash Flow Statement - ✔✔A summary that shows Money coming in and out of the
business for a specific period
e.g if inventory goes up from say 1000 to 1020 that means it would show up as -20 on
the income statement because that is an outflow of cash (you spent money on this)
The same with something like dividends
If you had an increase in debt from 900 to 1200 then that would show up as +300 since
you've been loaned more money, thus having an inflow of income into the company
Same goes for common stock treat it as you would debt
✔✔More assets means - ✔✔less cash
✔✔More liabilities means - ✔✔more cash
✔✔Cash flows statement breakdown - ✔✔1) Cash flow from operating activities
Money in from regular business activities i.e selling products; +net income, - inventory (if
negative [spent more on inventory i.e outflow]), + depreciation
2) Cash flow from investing activities
Money invested in long-term operating and financial assets i.e buying property and
equipment as well as capital expenditure; - property plant and equipment
3) Cash flow from financing activities
Money raised from or being paid to debt and equity investors.;
Debt, Capital, - dividends paid out to shareholders
4) Net Cash flow
+ = inflow
- = outflow
✔✔Financial Statement - ✔✔A summary of all the transactions that have occurred over
a particular period.
Broken down into:
1) Management Discussion and Analysis (MD&A)
Current performance of the business and liquidity/capital reserves of the business
2) Main Statements
AND SOLUTION RATED A+
✔✔Residual Claim - Shareholder - Balance sheet - ✔✔the last in line of all those who
have a claim on the assets and income of the corporation
✔✔Leverage Effect - Balance sheet - ✔✔using borrowed money—specifically, the use
of various financial instruments or borrowed capital—to increase the potential return of
an investment.
Debt stays the same but the value of equity goes up if the asset goes up in value
✔✔Net debt - Income statement - ✔✔Total Debt - Cash & Equivalents
Equivalents can include things such as INVESTMENTS
NB: On a balance sheet the Total debt will be outlined, do NOT assume liabilities to be
debt nor accounts payable - That is for the balance sheet which outlines assets
✔✔EBITDA based leverage - Balance sheet - ✔✔Net Debt / EBITDA
Tests the ability to repay debt
✔✔Asset based leverage - Balance sheet - ✔✔Debt / Equity
Measure of non-equity finance to equity finance
✔✔Interest Cover - Balance sheet - ✔✔EBITDA / interest expense
Tests the ability to pay finance costs
✔✔BASE analysis - Forecasting Retained Earnings - Cash flow statement - ✔✔1)
Beginning
The beginning value of the retained earnings
2) Addition
Net income can cause the retained earnings to go up
3) Subtraction
Paying dividends out to shareholder and debt holders can cause the retained earnings
value to fall/decrease
4) Ending
The final value after adding net income and subtracting the dividends that were payed
out
, ✔✔Cash Flow Statement - ✔✔A summary that shows Money coming in and out of the
business for a specific period
e.g if inventory goes up from say 1000 to 1020 that means it would show up as -20 on
the income statement because that is an outflow of cash (you spent money on this)
The same with something like dividends
If you had an increase in debt from 900 to 1200 then that would show up as +300 since
you've been loaned more money, thus having an inflow of income into the company
Same goes for common stock treat it as you would debt
✔✔More assets means - ✔✔less cash
✔✔More liabilities means - ✔✔more cash
✔✔Cash flows statement breakdown - ✔✔1) Cash flow from operating activities
Money in from regular business activities i.e selling products; +net income, - inventory (if
negative [spent more on inventory i.e outflow]), + depreciation
2) Cash flow from investing activities
Money invested in long-term operating and financial assets i.e buying property and
equipment as well as capital expenditure; - property plant and equipment
3) Cash flow from financing activities
Money raised from or being paid to debt and equity investors.;
Debt, Capital, - dividends paid out to shareholders
4) Net Cash flow
+ = inflow
- = outflow
✔✔Financial Statement - ✔✔A summary of all the transactions that have occurred over
a particular period.
Broken down into:
1) Management Discussion and Analysis (MD&A)
Current performance of the business and liquidity/capital reserves of the business
2) Main Statements
