S5FIN563 Exam

ADVANCED FINANCIAL ANALYSIS
MAJOR FINANCIAL STRATEGY

Duration: 2 hours – Closed book (exception: synonyms and formulas document) – Simple
calculators allowed
Multiple-choice questions
Only one answer is correct per question.

No negative point will be assigned for a false answer.
Between parentheses means “minus”.
Show your calculation per question
1 – In function of the data below what is the most likely free cash flow to firm (after tax) ?
EBITDA € 2,000,000
Income tax rate 30%
Decrease in working capital requirement € 400,000
Opening Ending
P,P&E, gross € 1,200,000 € 1,500,000
Accumulated depreciation -€ 400,000 -€ 500,000
P,P&E, net € 800,000 € 1,000,000
There is no sale of P,P&E during the period.
FCFF = NOPAT + D&A expense -Increase/+Decrease in WCR – CAPEX
D&A expense = -500,000 € - (-400,000 €) = -100,000 €

NOPAT = EBIT after tax = (EBITDA – D&A) * (1-T) = (2,000,000 – 100,000) * (1-30%) =
1,330,000 €
+ Decrease in WCR = 400,000 €
-CAPEX =1,500,000 – 1,200,000 = 300,000 €
FCFF = 1,330,000 € + 100,000 € + 400,000 € - 300,000 € = 1,530,000 €
€730,000
€1,030,000
€1,530,000
€1,630,000
2 – In function of the data below what is the most likely change in net debt (i.e. debt minus cash
and marketable securities)?
Free cash flow to firm (after tax) € 5,000,000

Interest expense € 520,000
Interest income € 200,000
Dividends paid € 800,000
Income tax rate 25%
Increase in capital stock and additional paid-in capital € 2,500,000
New debt € 2,600,000
Repayment of debt € 1,000,000
Current debt:
FCFF after tax = 5,000,000 €
FCFF before tax = 5,000,000 € / (1-25%) = 6,666,666 €
+ Interest expense € 520,000
- Interest income € 200,000
+ Dividend paid € 800,000
+ Repayment of the debt € 1,000,000
= 8,786,666
New debt:
2,600,000 €
Change in debt = Current debt – New debt = 6,186,666 €
€6,460,000
€6,660,000
€7,860,000
€8,260,000
3 – In function of the data below what is the most likely return on net operating assets after tax?
ROCE before tax 15%

ROCE after tax 12%
Return on financial assets before tax 4%
Net operating assets in % of capital employed 85%
ROCE decomposition:
RNOA before tax X
x NOA / Capital employed 85%
+ Return on financial assets before tax 4%
x Financial assets / Capital employed Hypothesis: 15%
= ROCE before tax 15%
RNOA before tax * 85% + 4% * 15% = 15%

15% - 4% * 15% = 85% * RNOA before tax
RNOA before tax = (15% - 4% * 15%) / 85% = 16.94%
13.12%
13.24%
13.41%
13.55%
4 – From the data below what is the most likely net profit?
Operating cash flow € 8,000,000

Impairment losses € 800,000
Loss on sale of P,P&E € 700,000
Depreciation and amortization expense € 200,000
Bad debt expense € 150,000
Increase in accounts payable € 400,000
Decrease in tax liabilities € 100,000
Increase in accounts receivable at net value € 1,000,000
Net profit = 8,400,000

Step 1: add back non cash expense
D&A expense = + 200,000 €
Step 2: Change in WCR
(Increase)/Decrease in current operating assets = - 1,000,000 € (accounts receivable)
(Decrease)/Increase in current operating liabilities = 400,000 € (account payable)
Operating cash flow = 8,000,000 €
€6,850,000
€7,000,000
€7,150,000
€7,350,000
5 – What is the most likely new debt (i.e. inflow in the debt account in the balance sheet)?
Cash flow provided by operating activities € 4,000,000

Cash flow used in investing activities € 2,600,000
Increase in capital stock € 1,700,000
Increase in treasury stock € 600,000
Repayment of debt € 800,000
Change in cash and cash equivalents € 3,400,000
€500,000
€1,700,000
€2,400,000
€5,100,000
6 – What is the most likely EBIT?
Net profit € 4,300,000

Income tax rate 20%
Dividends received € 430,000
Dividends paid € 300,000
Interest paid € 230,000
Interest received € 110,000
Increase in accrued interest payable € 90,000
Increase in accrued interest receivable € 40,000
€5,015,000
€5,115,000
€5,215,000
€5,315,000
7 – From the data below what is the most likely comment on the financial ratios?
2021 2020
ROE 12% 12%
EBIT margin 20% 20%
Interest burden 65% 70%
Tax burden 72% 72%
Equity multiplier 2 1.5
The company decreases in 2021 its assets in percentage of revenue.

The company decreases in 2021 its financial risk.
The company decreases in 2021 its return on assets.
The company decreases in 2021 its operating working capital.
8 – From the data below what is the most likely comment on the financial ratios?
2021 2020
Net profit margin 15% 12%
ROA 7.50% 10%
ROE 15% 12%
In 2021, revenue represents 4 times the average equity.

In 2021, revenue equals the average equity.
In 2021, income tax rate decreases.
In 2021, average liabilities represent a smaller proportion of average assets than in 2020.
9 – From the data below what is the most likely operating profit?
Components purchase volume in units 10,000

Production volume 4,500
Sales volume 4,300
Selling price (per unit) € 2,000
Number of components per finished good 2

Purchasing cost during the period € 1,000,000
Manufacturing cost excluding components during the period € 2,500,000
Commercial cost during the period € 1,400,000
Administrative cost during the period € 1,600,000
Research and development cost during the period € 1,800,000
No opening inventories
Revenue = 4,300 * 2,000 = 8,600,000

-Cost of goods sold = (4,300/4,500) * (1,000,000 + 2,500,000 + 1,400,000) = 4,682,222
-SG&A = 1,600,000 €
-R&D = 1,800,000 €
=operating profit = 517,778
€400,000
€431,111
€551,111
€631,111

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ADVANCED FINANCIAL ANALYSIS

MAJOR FINANCIAL STRATEGY

Only one answer is correct per question.

There is no sale of P,P&E during the period.

FCFF = NOPAT + D&A expense -Increase/+Decrease in WCR – CAPEX

D&A expense = -500,000 € - (-400,000 €) = -100,000 €

FCFF = 1,330,000 € + 100,000 € + 400,000 € - 300,000 € = 1,530,000 €

Free cash flow to firm (after tax) € 5,000,000

Change in debt = Current debt – New debt = 6,186,666 €

ROCE before tax 15%

RNOA before tax * 85% + 4% * 15% = 15%

Operating cash flow € 8,000,000

Net profit = 8,400,000

Cash flow provided by operating activities € 4,000,000

6 – What is the most likely EBIT?

Net profit € 4,300,000

The company decreases in 2021 its assets in percentage of revenue.

In 2021, revenue represents 4 times the average equity.

Components purchase volume in units 10,000

Number of components per finished good 2

Revenue = 4,300 * 2,000 = 8,600,000

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