Financial Forecasting MCQs
Financial Forecasting MCQs
The following Financial Forecasting MCQs have been compiled by our experts through research, in order to test your knowledge of the subject of Financial Forecasting. We encourage you to answer these 100+multiple-choice questions to assess your proficiency.
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1: True or False? Probability models are often used for financial forecasts.
A. True
B. False
2: The indicator approach takes into account:
A. (None of these)
B. GDP
C. unemployment figures
D. (All of these)
3: True or False? Bayes theorem is often used in financial forecasting.
A. True
B. False
4: What are the two overarching financial forecasting approaches?
A. Qualitative and Quantitative
B. Exponential and Qualitative
C. Average and Exponential
D. Rate Conversation and Sales Smoothing
5: Which of the following is NOT a forecasted financial statement?
A. Pro forma Statement of Financing
B. Pro forma Income Statement
C. Pro forma Balance Sheet
D. Pro forma Statement of Cash Flows
6: True of False? The longer the financial forecast, the more accurate it will be.
A. True
B. False
7: Which type of security is used as a measurement of a low risk rate?
A. LIBOR
B. corporate bonds
C. government bonds
D. (none of these)
8: Which of the following items would NOT be included in a cash budget?
A. Taxes
B. Depreciation
C. Cash receipts
D. Payments to Suppliers
9: What does DCF stand for?
A. Discounted Cash Financials
B. Discounted Cash Flow
C. Discount Cash Flow
D. Discount Cash Financial
10: Company XYZ has a project that requires an immediate investment of $100,000 which management has calculated to have discounted cash inflows of $105,000. This project is:
A. Acceptable, because the Net Present Value (NPV) is equal to the required rate of return.
B. Not acceptable, because it has a negative Profitability Index.
C. Acceptable, because it has a positive Net Present Value (NPV).
D. Not acceptable, because the Internal Rate of Return (IRR) is negative.
11: True or False? Present value is the future amount of money that is discounted to today.
A. False
B. True
12: What is the discount rate often used in capital budgeting that makes the Net Present Value (NVP) of all cash flows from a particular project equal to zero:
A. Rate of Asset Return (RAR)
B. Turnover Rate
C. Internal Rate of Return (IRR)
D. Price to Earnings (P/E)
13: True or False? The Monte Carlo method is often used in modeling.
A. False
B. True
14: Management will use sensitivity analysis during financial forecasting to:
A. Analyze foreign economic conditions to determine currency risk.
B. Determine how different values of an independent variable will impact a particular dependent variable under a set of stated assumptions.
C. Determine the type of forecasting method to use.
D. Analyze how previous financial forecasts performed versus actual company performance.
15: Projected financial statements are called:
A. SEC 10K Filings
B. Pro Forma Financial Statements
C. Cash Budgets
D. Annual Reports
16: True or False? Dividend structure and Capital structure are crucial to financial models
A. False
B. True
17: True of False? Forecasting future revenues is one of the most difficult aspects when preparing a financial forecast.
A. True
B. False
18: True or False? A foward price-earning ratio is an example of financial forecasting.
A. True
B. False
19: Which of the following helps create a financial model?
A. gross margin
B. expected tax rate
C. (All of these)
D. growth rate
20: A cash forecast is an estimate of future inflows of revenue and _______?
A. outflows of profits
B. outflows of expenses
C. inflows of expenses
21: True or False? Use of historical data is irrelevant to a financial forcast.
A. True
B. False
22: True or False? Predicting revenue is not part of financial forecasting.
A. True
B. False
23: True or False? Forecasting is based on historical information and assumptions.
A. False
B. True
24: What does EBIT stand for?
A. Earnings before Interest and Tax
B. Earnings before Interest and Taxable Income
C. Earnings before Income and Tax
25: What is financial forecasting?
A. Estimation of a company's future financial situation
B. Determination of a company's current financial situation
C. (None of these)
26: Which of the following could be used in financial forecasts?
A. Historical data of earnings
B. Information on balance sheets
C. (All of these)
D. financial models
27: The primary purpose of a cash budget is:
A. To determine the cash collection pattern
B. To determine monthly cash receipts
C. To determine whether the company has enough cash to fulfill regular operations or will generate excess cash
D. To divide the income statement into monthly periods
28: True or False? A sensitivity analysis is changing a value or an original assumption to see what effect it has on the overall model.
A. False
B. True
29: True of False? Forecasting future costs can be estimated by using historical data.
A. False
B. True
30: Financial forecasting is used for:
A. private companies
B. public companies
C. countries
D. (All of these)
31: True or False? A Monte Carlo distribution could be a bell curve.
A. True
B. False
32: True or False? Financial forecasting can always predict future events.
A. False
B. True
33: A security that has a beta of less than 1 has __________?
A. higher volatility than the market
B. lower volatility than the market
34: True or False? Verification is the process of comparing actual results and predicted results.
A. True
B. False
35: What is the formula for compound interest?
A. (1+i)^t
B. (1+ it)
C. (1+it) / (t)
D. (1+i) / (t)
36: Which of the following balance sheet items is NOT likely to vary directly with changes in revenue?
A. Accounts Receivable
B. Accounts Payable
C. Inventory
D. Long-term Debt
37: Which of the following capital budgeting techniques calculates the length of time required to recover the initial investment for a project?
A. Payback Method
B. Simple Rate of Return Method
C. Discounted Cash Flow Method
D. Internal Rate of Return Method
38: True or False? The Bayesian Probablity method is used often for financial forecasting.
A. True
B. False
39: Which equation is best for forecasting future sales?
A. Forecasted Sales = Current Sales(1 + Growth Rate)
B. Forecasted Sales = Current Sales(1 - Growth Rate)
C. Forecasted Sales = Current Sales + (1 + Growth Rate)
D. Forecasted Sales = Current Sales(1 + Growth Rate)^2
40: Which Method uses historical data as the basis of estimating future outcomes/information
A. Judgmental Methods
B. Artificial Intelligence Methods
C. Time Series
D. Econometric Forecasting Methods
41: True or False? The problem with Monte Carlo analysis is that you can only run one trial.
A. False
B. True
42: A company’s Sustainable Rate of Growth (SRG) is determined by which of the following:
A. SRG = Common Equity/Assets
B. SRG = Net Income/Common Equity
C. SRG = Sales/Assets
D. SRG = ROE*(1 - Dividend Payout Ratio)
43: Which of the following pro forma statements is likely to be calculated first while forecasting financials?
A. Statement of Retained Earnings
B. Statement of Cash Flow
C. Income Statement
D. Balance Sheet
44: Which of the following is an example of financial forecasting?
A. PE ratio
B. Forward PE ratio
C. Tailing PE ratio
D. Market capitalization
45: The time series method:
A. most commonly used
B. gives less importance to extreme data points
C. takes into account several methods using past and current data
D. (All of these)
46: True or False? Black swan events are typically included in financial forecasts.
A. False
B. True
47: Which of the following items is NOT likely found on a capital budget?
A. Replacement Equipment
B. Exisiting Inventory
C. New Equipment
D. Research and Development
48: What is an example of qualitative forecasting technique?
A. Last Period Demand
B. Simple Exponential Smoothing
C. Delphi Method
D. Seasonal Indexes
49: The Delphi method is a type of:
A. linear model
B. (None of these)
C. quantitative model
D. qualitative model
50: Which of the following is not included under the quantitative forecasting method?
A. Trend Analysis
B. Naive Method
C. Delphi Method
D. Moving Average
51: Which of the following is not included under the qualitative forecasting method?
A. Market Research
B. Moving Average Methods
C. Delphi Method
D. Executive Opinions
52: True or False? Quantitative models typically use experts opinions to form future trends.
A. True
B. False
53: Which budget is prepared to determine how much external financing will be needed to support estimated sales?
A. Balance Sheet Budget
B. Income Statement Budget
C. Cash Budget
D. Shareholder's Equity Budget
54: The most encompassing means of financial forecasting is:
A. Through the use of securities analyst's forecasts for the firm
B. Through the use of Pro Forma Financial Statements
C. Done using a long-term time horizon
D. Done using a short-term time horizon
55: If a company has a low PE ratio and is expected to maintain profit, what do you expect the share price to do in the future?
A. Go down
B. Go up
C. stay the same
56: The indicator approach is a type of:
A. (None of these)
B. linear model
C. qualitative model
D. quantitative model
57: True or False? A black swan is an example of an internality.
A. True
B. False
58: What does the x-axis of the security market line measure?
A. risk
B. expected return
C. slope
59: Companies with lower PEG ratios typically:
A. there is no correlation between PEG and performance
B. outperfom companies with higher PEG ratios
C. (None of these)
D. underperform companies with higher PEG ratios
60: On the pro forma balance sheet, which of the following is normally the "plug" number inserted to "balance" the balance sheet?
A. Total Assets
B. Long-term Debt
C. Additional Funds Needed
D. Changes in Retained Earnings
61: If the yield to maturity > current yield > coupon yield, the bond is sold at a ______?
A. discount
B. par
C. premium
62: If a company has a very high forward PE ratio, what do you expect the share price to do in the future?
A. Go up
B. Go down
C. stay the same
63: Companies with higher PEG ratios typically:
A. (None of these)
B. underperform companies with lower PEG ratios
C. have no correlation with companies who have lower PEG ratios
D. outperfom companies with lower PEG ratios
64: What is an advantage of the EV / EBITDA multiple?
A. It is unaffected by depreciation policy
B. It reports variations in capital expenditures and depreciation
C. Ignores value created through tax management
65: How does market research differ from the delphi method?
A. both are similar but the delphi method is a newer name
B. both take the opinions of experts but the delphi method takes into account their previous forecasting results
C. one takes the opinion of non-experts while the other takes only the opinion of experts
D. (None of these)
66: True or False? Bayes theorem does not use balance sheets to make predictions.
A. False
B. True
67: The Black-Scholes model calculates the price of a:
A. Bond Price
B. European put and call options
C. American put and call option
D. Share Price
68: Which of the following are important characteristics when identifying peer companies to use in firm valuation?
A. Cash Flow
B. Company Size
C. Growth Rate
D. All
69: The Percent of Sales Method of financial forecasting will help to identify:
A. Relationship changes between assets and liabilities
B. Changes to earnings
C. The rationale behind sales increases
D. Financing needs
70: True or False? Prediction markets are informative markets that are created for the purpose of making market predictions.
A. False
B. True
71: Before they are updated, financial forecasts are typically used for:
A. 5 year's time
B. a month's time
C. (None of these)
D. a year's time
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 _________________.
A. $400,000
B. $600,000
C. $1,000,000
D. $100,000
Why does a Balance Sheet balance (assets = liabilities + equity)?
A. It is required by law.
B. Companies force it to balance.
C. Accounting is a double-entry system of equal debits and credits.
D. Auditors make adjustments to make it balance.
The primary financial statements that are forecast are _________________.
A. income statement only
B. retained earnings and cash flow
C. balance sheet and trial balance
D. income statement, balance sheet, and cash flow
Which of the following is NOT an operating expense?
A. Rent
B. Accounts Payable
C. Insurance
D. Bank fees
An operating budget in a corporate setting is usually prepared ________________.
A. for the following fiscal year
B. for the next 5 years
C. one month at a time
D. None of the above; an operating budget is not typically created in a corporate setting.
Why would a company perform a variance/sensitivity analysis?
A. It is a required financial statement.
B. Auditors will ask for it.
C. Shareholders require the document.
D. To see how the forecast model changes based on changing dynamic inputs
Depreciation on the Balance Sheet reflects ___________________.
A. the current period depreciation
B. Tax Liability
C. Total Assets
D. cumulative depreciation on fixed assets
A. LLC
B. C Corporation
C. Sole Proprietorship
D. LLP
Why might someone forecast future years as one annual number?
A. The forecaster is lazy.
B. It is the best method for forecasting future years.
C. It saves management time and energy.
D. Because it is difficult to predict what will happen, applying a growth percentage to the year is the most reasonable assumption.
Why is it reasonable for a startup company to forecast a Net Loss for several years?
A. A company can never make money in its first years.
B. It reduces tax liability in future years.
C. As the company launches and grows, expenses will often exceed any revenue-generating abilities; hence, the expected payoff will not come until future years.
D. It's not reasonable and should not be done.
Which of the following represents three possible revenue streams for an online venture?
A. Product Sales, In-Store Sales, Bulk Purchases
B. Ad Revenue, Affiliate Revenue, Product Sales
C. In-Store Sales, Ad Revenue, Product Sales
D. In-Store Sales, Affiliate Revenue, Product Sales
For a startup company looking to gain investor interest, which of the following seems like a reasonable amount of time to forecast ahead?
A. 6 months
B. 1 year
C. 5 years
D. 20 years
Revenues on the Profit & Loss should be changed ___________________.
A. by inputting them directly into the cells
B. through the accounting system
C. by showing change in cash flow
D. by changing assumptions on the assumptions page
Is income tax forecasted?
A. Yes, usually
B. Never
C. Not unless required by the country law
D. Yes, but only if the company is forecasted to earn over $1 million
Which of the following would NOT be included on a summary page?
A. Cash Balance
B. Net Income
C. Payroll Expense
D. Total Equity
Which of the following parties should be kept in mind when creating a financial forecast?
A. The government
B. The end user
C. The financial model builder
D. The Board of Directors
What does an increasing trend in Accounts Payable indicate for a company?
A. It indicates nothing in particular.
B. The company is making better use of its cash and is not paying bills as quickly.
C. Cash is being mismanaged.
D. Net Income is increasing.
The Net Income on the Cash Flow Forecast comes from the __________________.
A. Balance Sheet
B. Statement of Retained Earnings
C. Forecasted Profit & Loss Statement
D. Variance Analysis
Why is Change in Accounts Payable added back to Net Income?
A. There is no reason to do so.
B. An increase in AP reflects the fact that the company did not spend cash on paying its bills.
C. It is required by the SEC.
D. It is required by IRS tax law.
To calculate a worst case scenario, a company would ____________ and ____________.
A. increase revenue streams, decrease operating expenses
B. increase operating expenses, increase revenues
C. decrease revenues, increase operating expenses
D. show no change to revenue, show change only to operating expenses
A capitalization summary would show ______________________.
A. Net Income, Cash, and Retained Earnings
B. Operating Expenses and Tax Liability
C. Change in Accounts Receivable
D. Valuation, Investment, and Ownership %
Net Income on the Balance Sheet reflects _______________.
A. Net Income for the current month
B. year-to-date Net Income
C. Change in Assets from inception
D. Tax liability
One method of calculating the valuation of a company is ________________.
A. Accounts Payable change
B. Discounted Cash Flows
C. Retained Earnings Growth
D. Tax Liability discounted
The purpose of a worst case analysis is to _____________________.
A. show the best possible result
B. advise the reader not to invest
C. show that management is competent
D. show what the results would be if things do not work out as forecasted
Should a summary include metrics such as Gross Margin %?
A. Yes, they are good high-level indicators.
B. Yes, it is required by law.
C. No, they are excessive information.
D. No, they are too complex for a summary.
Which of the following would most likely be included on a summary page for Balance Sheet data?
A. Total Assets, Total Liabilities, Total Equity
B. Net Income, Total Sales, Total Operating Expense
C. Cash Balance, Cash Inflows, Cash Outflows
D. Retained Earnings and Cash
Operating expenses should ____________________.
A. be summarized, showing one lump sum per period
B. be organized by department
C. be detailed, showing each line item that the actual P&L will have
D. not be included
In what way are the Cash Flow Statement and the Balance Sheet linked in a dynamic forecast?
A. They are not interrelated.
B. Cash from the Cash Flow Statement is carried over to the Balance Sheet cash line.
C. Equity from the Balance Sheet is transferred to the Cash Flow Statement.
D. Accounts Receivable is transferred from the Cash Flow Statement to the Balance Sheet.
How is income tax forecasted?
A. By applying the prevailing corporate tax rate to any income for the period
B. By showing it escalating over time
C. By assuming zero unless profits exceed $1 million
D. By assuming zero unless profits exceed $1 million
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