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
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
