Financial Modeling Study Questions and Complete Solutions
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Course
Financial Modelling
Institution
Financial Modelling
Board of Directors Hold management accountable and make board-level decisions about corporate strategy
Company Management Measure performance and make strategic, operating and financial decisions
Creditors Measure creditworthiness, liquidity and bankruptcy risk
Investors Make decisions on buying...
Financial Modeling Study Questions and
Complete Solutions
Board of Directors ✅Hold management accountable and make board-level decisions
about corporate strategy
Company Management ✅Measure performance and make strategic, operating and
financial decisions
Creditors ✅Measure creditworthiness, liquidity and bankruptcy risk
Investors ✅Make decisions on buying or selling equity investments
Acquirers ✅Determine valuation and make investment decisions
Regulators ✅Determine whether the company is operating according to regulations
and the law
Income Statement ✅Presents the results of operations (e.g. profitability) over a period
of time, typically monthly, quarterly and/or annually. Purpose is to show stakeholders
whether the company made or lost money during the period being reported. It indicates
how revenues are transformed into net income. It displays the revenues recognized for
a specific period of time and the expenses charged against those revenues.
Revenue (sales) ✅amount charged for the delivery of goods or services
Cost of Sales (Cost of Goods Sold) ✅is the direct cost of producing revenue (raw
materials, direct wages, etc.)
Gross Profit ✅calculated as revenue less cost of sales and indicates how efficiently
labor
and supplies are used in the production process
Operating Expenses ✅all other expenses required to run the business (management
salaries, marketing, travel, etc.)
Operating Income (EBIT) ✅calculated as revenue less cost of sales and operating
expenses and indicates a company's earning power from ongoing operations
Non-Operating Expenses ✅expenses or income not related to the regular business of
the company (interest expense, restructuring expenses, etc.)
, Corporate Taxes ✅Local and federal income taxes the company incurs
Net Income (Net Earnings) ✅Calculated as revenue less all expenses of the company
and indicates the increase in shareholders' value resulting from operations
Balance Sheet ✅Shows an organization's financial position at a particular point in time.
It discloses the resources an organization controls (assets) and the claims on those
resources (liabilities and equity)
Cash ✅current assets comprising currency or currency equivalents that can be
accessed immediately
Accounts Receivable ✅the amount owed to an organization from the sale of its
products or services
Fixed Assets ✅the value of assets and property that cannot easily be converted to
cash and has a useful life of greater than 1 year.
Accounts Payable ✅the amount owed to an organization's vendors
Debt ✅the amount of obligations owed to creditors
Equity ✅cumulative shareholder investment plus cumulative net income
Working Capital ✅A measure of a company's efficiency and its short-term financial
health--calculated as non-cash current assets less non-debt current liabilities
Non-Cash Current Assets ✅represent all assets besides cash that are expected to be
converted into cash within one year. These assets appear on the company's balance
sheet and include accounts receivable, inventory, prepaid expenses, and other assets
Non-Debt Current Liabilities ✅represent all obligations besides short-term debt that are
due within one year. Current liabilities appear on the company's balance sheet and
include accounts payable, accrued liabilities, and other obligations.
Net Debt ✅Total debt less cash--used in credit analysis, as creditors assume the
company's cash balance could be applied to debt repayment in the event of a liquidity
crunch or bankruptcy.
Cash Flow Statement ✅Shows how changes in the balance sheet accounts and net
income affect cash and breaks down cash into operating, investing and financing
activities. Useful in determining the short-term viability of a company, particular its ability
to pay its bills
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