L2 Financial Statement Modeling Quiz

Company A reported a gross debt of $40,000 with an interest expense of $6,000 and cash & short term securities worth $15,000 earning $600 interest. What is the net interest expense rate for Company A?

A company has a historical average proportion of sales to PP&E of 0.8. If the forecasted revenue for the next year is $1,000,000, what would be a simple estimate for PP&E?

Company H has a NOPLAT of $300,000 and operating assets and operating liabilities of $2,000,000 and $1,200,000 respectively. What is the company’s ROIC?

What is the primary difference between Return on Invested Capital (ROIC) and Return on Capital Employed (ROCE)?

When estimating future effective tax rates, on what should it be based?

If a company operates in a rapidly growing market but is losing market share, which of the following approaches to forecasting revenue may be more optimistic?

What is a primary characteristic of the hybrid approach in developing inputs for equity valuation models?

How might you evaluate whether economies of scale are present in an industry?

A software company is experiencing intense competition in its market. Several other firms have released similar products, leading to significant price pressure. Which of the following would best describe the company’s position, according to Porter’s Five Forces?

In a scenario where input costs increase by $20,000 and a company with perfectly inelastic demand decides to pass all the increase onto its customers, what is the expected effect on the company’s profit margins?

A technology company recently introduced a new innovative product that competes directly with its existing product line. The company estimates a cannibalization factor of 30% for its new product. What does this mean for the company’s sales?

A small retail company has managed to negotiate exclusive contracts with its suppliers, limiting the ability of its competitors to access similar quality products. According to Porter’s Five Forces, which of the following is the company leveraging?

An electronic goods manufacturing company is considering switching to a substitute input due to an increase in the cost of the current input. What factors should the analyst consider while making the decision?

An investor plans to hold a particular stock for 8 years. However, the stock belongs to a company operating in an industry known for its 5-year cyclical nature. What should be the appropriate forecast horizon for this stock?

A company with a complex business model recently underwent a significant merger. The historical data shows a strong cyclical pattern. As an analyst, you have a forecast horizon of 5 years. What is the main consideration you should make when forecasting?

An analyst forecasts the revenue of a company over a period of 7 years using the normalized revenue trend. However, the company is in a rapidly growing industry which is still in its infancy and not yet stable. Is this method of forecasting advisable? Why?

You are evaluating a stock with a forecast horizon of 5 years. Historically, the stock’s PE ratio was 20% higher than the S&P500. If the projected PE ratio for the S&P500 is 25, and you expect the company’s earnings at the end of the forecast horizon to be $5 per share, what is the estimated terminal value of the stock using the relative valuation approach?