CFA® Level I Exam Financial Statement Analysis Practice Questions

What our FSA questions cover

• Revenue and expense recognition, nonrecurring items and basic and diluted earnings per share
• Balance sheet classification and measurement, intangibles and goodwill
• Direct and indirect cash flow statements, free cash flow to the firm and to equity
• FIFO, weighted average and LIFO (US GAAP), the LIFO reserve and inventory write-downs
• Capitalizing vs expensing, depreciation, impairment and revaluation; leases and bonds for the issuer
• Deferred tax assets and liabilities, effective vs statutory tax rates
• Financial reporting quality and warning signs; activity, liquidity, solvency and profitability ratios; DuPont analysis

This list is our own summary of the topic, written for practice. The official topic outline and learning outcomes are published by CFA Institute for registered candidates.

Ideas the questions test most

1. In the indirect method, start from net income, add back noncash charges such as depreciation, subtract gains on asset sales, then adjust for changes in working capital: an increase in receivables or inventory reduces operating cash flow.
2. In a period of rising prices, FIFO gives higher ending inventory and gross profit than LIFO, and LIFO gives the higher cost of goods sold. LIFO is permitted under US GAAP and not under IFRS.
3. Capitalizing a cost instead of expensing it raises current profit and assets, and puts the cash outflow in investing rather than operating activities.
4. A deferred tax liability arises when taxable income is below accounting profit because of a temporary difference, for example faster depreciation for tax.
5. DuPont analysis splits return on equity into net profit margin × asset turnover × leverage (assets ÷ equity).

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Common questions

More Level I topics

• Ethical and Professional Standards · 10–15%
• Quantitative Methods · 11–14%
• Economics · 6–9%
• Corporate Finance · 6–9%
• Equities · 11–14%
• Fixed Income · 11–14%
• Derivatives and Risk Management · 6–9%
• Alternative Investments · 6–9%
• Portfolio Construction · 8–12%