Friday, August 5, 2016

Financial Forecasting Test Answers



Ques : Which of the following is NOT an operating expense?
Ans  : Accounts Payable

Ques : Which of the following represents three possible revenue streams for an online venture?
Ans  :  Ad Revenue, Affiliate Revenue, Product Sales

Ques : Revenues on the Profit & Loss should be changed ___________________.
Ans  : through the accounting system

Ques : Which of the following parties should be kept in mind when creating a financial forecast?
Ans  : The end user

Ques : Should a summary include metrics such as Gross Margin %?
Ans  :  Yes, they are good high-level indicators.

Ques : Which of the following is the accepted format for a forecasted Balance Sheet?
Ans  : Assets, Liabilities, Equity

Ques : Which of the following would be the most useful forecasting interval?
Ans  : Monthly

Ques : The majority ownership of a private company is typically held by __________________.
Ans  : venture capital firms

Ques :  Which of the following is the accepted format for a forecasted P&L?
Ans  : Revenue, COGS, Operating Expenses

Ques : Overall, what is the purpose of a Cash Flow Statement?
Ans  : It shows how the company received and spent cash each period.

Ques : The basic formula for a Balance Sheet is __________________.
Ans  :  Assets = Liabilities + Equity

Ques :  Which of the following is the accepted format for a forecasted Cash Flow Statement?
Ans  : Net Income, Operating Activities, Financing Activities, Investing Activities

Ques : Retained Earnings reflect ____________________.
Ans  :  the cumulative Net Income for a company from inception until its last reporting year

Ques : Which of the following would be a logical arrangement for showing revenue?
Ans  : Detailed by revenue stream

Ques : A company has a post-money valuation of $500,000. The last investor put in $100,000. The pre-money valuation before the investor came in was _________________.
Ans  :  $400,000

Ques : Why does a Balance Sheet balance (assets = liabilities + equity)?
Ans  : Accounting is a double-entry system of equal debits and credits.

Ques : The primary financial statements that are forecast are _________________.
Ans  :  income statement, balance sheet, and cash flow

Ques : An operating budget in a corporate setting is usually prepared ________________.
Ans  :  for the following fiscal year

Ques : Why would a company perform a variance/sensitivity analysis?
Ans  :  To see how the forecast model changes based on changing dynamic inputs

Ques : Depreciation on the Balance Sheet reflects ___________________.
Ans  : cumulative depreciation on fixed assets

Ques : For which of the following company structures is it easiest to issue shares?
Ans  :  C Corporation

Ques : Why might someone forecast future years as one annual number?
Ans  : Because it is difficult to predict what will happen, applying a growth percentage to the year is the most reasonable assumption.

Ques : Why is it reasonable for a startup company to forecast a Net Loss for several years?
Ans  :  As the company launches and grows, expenses will often exceed any revenue-generating abilities; hence, the expected payoff will not come until future years.

Ques :  For a startup company looking to gain investor interest, which of the following seems like a reasonable amount of time to forecast ahead?
Ans  : 5 years

Ques : Is income tax forecasted?
Ans  : Yes, usually

Ques : Which of the following would NOT be included on a summary page?
Ans  : Payroll Expense

Ques : What does an increasing trend in Accounts Payable indicate for a company?
Ans  : The company is making better use of its cash and is not paying bills as quickly.

Ques : The Net Income on the Cash Flow Forecast comes from the __________________.
Ans  :  Forecasted Profit & Loss Statement

Ques : Why is Change in Accounts Payable added back to Net Income?
Ans  : There is no reason to do so.

Ques : To calculate a worst case scenario, a company would ____________ and ____________.
Ans  : decrease revenues, increase operating expenses

Ques : A capitalization summary would show ______________________.
Ans  :  Valuation, Investment, and Ownership %

Ques : In what way are the Income Statement and the Cash Flow Statement linked in a dynamic forecast?
Ans  : Net Income is carried over to the first line of the Cash Flow Statement.

Ques : Net Income on the Balance Sheet reflects _______________.
Ans  : year-to-date Net Income

Ques : What is meant by the term "post-money valuation"?
Ans  : The valuation of a company after an investment round

Ques : One method of calculating the valuation of a company is ________________.
Ans  :  Discounted Cash Flows

Ques : The purpose of a worst case analysis is to _____________________.
Ans  : show what the results would be if things do not work out as forecasted

Ques : Which of the following would most likely be included on a summary page for Balance Sheet data?
Ans  : Total Assets, Total Liabilities, Total Equity

Ques : Operating expenses should ____________________.
Ans  : be organized by department

Ques :  In what way are the Cash Flow Statement and the Balance Sheet linked in a dynamic forecast?
Ans  :  Cash from the Cash Flow Statement is carried over to the Balance Sheet cash line.

Ques : How is income tax forecasted?
Ans  :  By applying the prevailing corporate tax rate to any income for the period

Ques :  In which of the following ways would typical Rent Expense be modeled?
Ans  : Based on average rent in major metropolitan areas

Ques :   The term "burn rate" refers to ______________.
Ans  :  the total operating expenses

Ques : Capitalization is defined as ______________________.
Ans  : the capital structure of a company

Ques : In what way are the Income Statement and the Balance Sheet linked in a dynamic forecast?
Ans  : Net income is carried over to the Equity section.

Ques :  Another way to express the Balance Sheet formula is ________________.
Ans  :  Equity = Assets - Liabilities

Ques : Which of the following would one expect to be the highest expense?
Ans  : Salaries

Ques : In which of the following sections would Change in Accounts Receivable be recorded?
Ans  : Cash from Operations

Ques : Which of the following decisions could be made by looking at the Balance Sheet?
Ans  : To invest excess cash into higher-yield investments

Ques : What is meant by the term "pre-money valuation"?
Ans  : The valuation of a company before an investment round

Ques : Why is it important to create assumptions for all possible changing variables?
Ans  : It makes future updates to the model easier because the user does not need to search for numbers embedded in formulas in the financial statements.

Ques : The most logical formatting convention for assumptions would be ___________________.
Ans  :  to outline and use red text in all input cells, and to add a note at the top of the assumptions stating that only red-text cells are to be changed, with uniform formatting and assumptions placement

Ques :  Which of the following decisions would best be made by looking at cash flow?
Ans  : The decision to spend less on capital assets and pay down payables in the next period

Ques :  To be as specific as possible, a revenue forecast should  ______________.
Ans  : be detailed month by month

Ques :   Ad Revenue, which is revenue generated by placing advertisements of other companies on your site, can be modeled by  _________________.
Ans  :  figuring the average revenue per ad multiplied by the expected number of advertisement spots in a given period

Ques : In general, a financial plan can be defined as _____________________.
Ans  : a plan for spending, saving, and generating revenue

Ques :  Why would an investor be interested in a company's pre-money valuation?
Ans  :Knowing the valuation helps the investor put his investment in perspective and understand how it is relative to the capital already in the company.

Ques : In which of the following sections would a startup company record an investment by a venture capital firm?
Ans  :  Cash from Investing

Ques : In what way are the Balance Sheet and the Cash Flow Statement linked in a dynamic forecast?
Ans  : Changes in Accounts Receivable are carried over to the Cash Flow Operating Activities section.

Ques : The term "revenue driver" refers to ____________________.
Ans  : any factor that drives revenue, such as site impressions

Ques : A simple method of calculating variance is to _________________.
Ans  : apply a percentage increase/decrease to each line item on the P&L

Ques : What is the purpose of a summary page?
Ans  : It gives a quick overview of the forecasted outcomes for various financials.

Ques : Would it be better to create detailed input that individually forecasts expenses or to create a simple, one-line input for Operating Expenses?
Ans  : Detailed input: each expense grows based on different variables.

Ques :  A normal revenue model will _______________.
Ans  : increase revenues over time

Ques : For most new ventures in the process of creating a forecast, the expense that warrants the most detailed analysis and input is _____________.
Ans  : wages

Ques :  To calculate a best case scenario, a company would ____________ and ____________.
Ans  :  increase revenue streams, decrease operating expenses

Ques : What purpose does a central assumptions input tab serve in an Excel-based forecast?
Ans  : It helps create an easy-to-use spreadsheet in which all inputs are located in one place.

Ques : Naming assumption cells is helpful because ____________________.
Ans  : it allows for easier creation and tracking of formulas built into the model

Ques : Companies calculate their valuation for the purpose of  _____________________.
Ans  : using the outcome as a basis for working with investors and deciding how much equity an investment is worth

Ques : Which of the following would most likely NOT be included on summary financials?
Ans  : Accounts Payable

Ques : In a variance/sensitivity analysis, a company will typically calculate _________________.
Ans  : both best case and worst case scenarios of altered revenues and expenses

Ques : How is Cash at the beginning of the period determined?
Ans  : It is taken from the prior period's ending cash balance.

Ques : A company has a pre-money valuation of $1,000,000. An investor will invest $100,000. The post-money valuation is _________________.
Ans  :  $1,100,000

Ques : Valuation can be calculated by ____________________.
Ans  :  discounting net income for the next several years

Ques : Valuation will typically trend _______________.
Ans  :  upwards over time as the company increases sales

Ques : Why would a company be conservative when projecting revenues?
Ans  : Being conservative is better than being overly optimistic.

Ques : Valuation is a ______________________.
Ans  : result of Net Income, Sales, and Cash Flow

Ques : Another name for the Balance Sheet is ____________________.
Ans  :  Statement of Financial Position

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