WALL STREET PREP FINANCIAL STATEMENT MODELING
100% CORRECT/GRADE A + ASSURED
Question 1
How is Gross Profit calculated on an Income Statement?
A) Revenue - Operating Expenses
B) Revenue - Cost of Goods Sold (COGS)
C) EBIT + D&A
D) Net Income + Taxes
Correct Answer: B) Revenue - Cost of Goods Sold (COGS)
Rationale: Gross Profit represents the profitability of a company's core business operations
before considering operating expenses. It is calculated by subtracting the direct costs
associated with producing goods or services (COGS) from the total revenue.
Question 2
Which of the following formulas correctly calculates Earnings Before Interest and Taxes
(EBIT)?
A) Gross Profit - D&A
B) Gross Profit - Operating Expenses - D&A
C) Net Income + Taxes
D) EBITDA - D&A
Correct Answer: B) Gross Profit - Operating Expenses - D&A
Rationale: EBIT, also known as Operating Income, is a measure of a company's
profitability from its normal business operations. It is calculated by taking Gross Profit and
subtracting all operating expenses, including Depreciation & Amortization (D&A). It can
also be calculated as EBITDA minus D&A.
Question 3
Pretax Profit (also known as Earnings Before Tax or EBT) is calculated by:
A) Subtracting Taxes from Net Income.
B) Starting with EBIT and adjusting for non-operating income and expenses.
C) Subtracting COGS and Operating Expenses from Revenue.
D) Adding D&A back to Net Income.
Correct Answer: B) Starting with EBIT and adjusting for non-operating income and
expenses.
Rationale: Pretax Profit is the profit a company generates before its tax liability is
deducted. The correct calculation is to start with EBIT and then add any Interest Income
and subtract any Interest Expense and other non-operating expenses.
Question 4
Which of the following is the final calculation to arrive at Net Income?
A) EBIT - Taxes
,[Type here]
B) Pretax Profit - Taxes
C) EBITDA - D&A - Taxes
D) Gross Profit - All Expenses
Correct Answer: B) Pretax Profit - Taxes
Rationale: Net Income is the "bottom line" of the income statement, representing the
company's profit after all expenses, including taxes, have been deducted. It is calculated by
subtracting the provision for income taxes from the Pretax Profit.
Question 5
How is EBITDA calculated from EBIT?
A) EBITDA = EBIT - D&A
B) EBITDA = EBIT + D&A
C) EBITDA = EBIT + Stock Based Compensation
D) EBITDA = EBIT - Taxes
Correct Answer: B) EBITDA = EBIT + D&A
Rationale: EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and
Amortization. Since EBIT is already "before interest and taxes," you arrive at EBITDA by
adding back the non-cash expenses of Depreciation & Amortization (D&A) to EBIT.
Question 6
When calculating Adjusted EBITDA, which of the following is a common "add-back"
adjustment?
A) Interest Expense
B) Taxes
C) Capital Expenditures
D) Stock-Based Compensation
Correct Answer: D) Stock-Based Compensation
Rationale: Adjusted EBITDA is a metric used to normalize a company's earnings by
removing non-recurring, irregular, and certain non-cash items. Stock-Based Compensation
is a common non-cash expense that is frequently added back to EBITDA to arrive at
Adjusted EBITDA.
Question 7
Which of the following items would appear in the correct order on a standard multi-step Income
Statement?
A) Revenue, EBIT, Gross Profit, Net Income
B) Revenue, Gross Profit, EBIT, Pretax Profit
C) Gross Profit, Revenue, Pretax Profit, EBIT
D) EBITDA, EBIT, Net Income, Pretax Profit
, [Type here]
Correct Answer: B) Revenue, Gross Profit, EBIT, Pretax Profit
Rationale: A standard income statement follows a "top-down" approach. It begins with
Revenue, subtracts COGS to get Gross Profit, subtracts operating expenses and D&A to get
EBIT, adjusts for interest to get Pretax Profit, and finally subtracts taxes to get Net Income.
Question 8
Which of the following is a non-cash expense on the Income Statement?
A) Cost of Goods Sold
B) Selling, General & Administrative (SG&A)
C) Depreciation & Amortization (D&A)
D) Interest Expense
Correct Answer: C) Depreciation & Amortization (D&A)
Rationale: D&A is an accounting expense that represents the allocation of the cost of a
tangible (depreciation) or intangible (amortization) asset over its useful life. No actual cash
leaves the company for this expense in the current period.
Question 9
A company has Revenue of $1,000, COGS of $400, and Operating Expenses of $200. D&A is
$50. What is the company's Gross Profit?
A) $1,000
B) $600
C) $400
D) $350
Correct Answer: B) $600
Rationale: Gross Profit is calculated as Revenue - COGS. In this case, it is $1,000 - $400 =
$600.
Question 10
Using the information from the previous question (Revenue $1,000, COGS $400, OpEx $200,
D&A $50), what is the company's EBIT?
A) $600
B) $400
C) $350
D) $300
Correct Answer: C) $350
Rationale: EBIT is calculated as Gross Profit - Operating Expenses - D&A. First, find
Gross Profit: $1,000 - $400 = $600. Then, calculate EBIT: $600 - $200 - $50 = $350.
Question 11
Using the information from the previous questions (EBIT $350), if the company also has Interest
Expense of $30, what is its Pretax Profit?
100% CORRECT/GRADE A + ASSURED
Question 1
How is Gross Profit calculated on an Income Statement?
A) Revenue - Operating Expenses
B) Revenue - Cost of Goods Sold (COGS)
C) EBIT + D&A
D) Net Income + Taxes
Correct Answer: B) Revenue - Cost of Goods Sold (COGS)
Rationale: Gross Profit represents the profitability of a company's core business operations
before considering operating expenses. It is calculated by subtracting the direct costs
associated with producing goods or services (COGS) from the total revenue.
Question 2
Which of the following formulas correctly calculates Earnings Before Interest and Taxes
(EBIT)?
A) Gross Profit - D&A
B) Gross Profit - Operating Expenses - D&A
C) Net Income + Taxes
D) EBITDA - D&A
Correct Answer: B) Gross Profit - Operating Expenses - D&A
Rationale: EBIT, also known as Operating Income, is a measure of a company's
profitability from its normal business operations. It is calculated by taking Gross Profit and
subtracting all operating expenses, including Depreciation & Amortization (D&A). It can
also be calculated as EBITDA minus D&A.
Question 3
Pretax Profit (also known as Earnings Before Tax or EBT) is calculated by:
A) Subtracting Taxes from Net Income.
B) Starting with EBIT and adjusting for non-operating income and expenses.
C) Subtracting COGS and Operating Expenses from Revenue.
D) Adding D&A back to Net Income.
Correct Answer: B) Starting with EBIT and adjusting for non-operating income and
expenses.
Rationale: Pretax Profit is the profit a company generates before its tax liability is
deducted. The correct calculation is to start with EBIT and then add any Interest Income
and subtract any Interest Expense and other non-operating expenses.
Question 4
Which of the following is the final calculation to arrive at Net Income?
A) EBIT - Taxes
,[Type here]
B) Pretax Profit - Taxes
C) EBITDA - D&A - Taxes
D) Gross Profit - All Expenses
Correct Answer: B) Pretax Profit - Taxes
Rationale: Net Income is the "bottom line" of the income statement, representing the
company's profit after all expenses, including taxes, have been deducted. It is calculated by
subtracting the provision for income taxes from the Pretax Profit.
Question 5
How is EBITDA calculated from EBIT?
A) EBITDA = EBIT - D&A
B) EBITDA = EBIT + D&A
C) EBITDA = EBIT + Stock Based Compensation
D) EBITDA = EBIT - Taxes
Correct Answer: B) EBITDA = EBIT + D&A
Rationale: EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and
Amortization. Since EBIT is already "before interest and taxes," you arrive at EBITDA by
adding back the non-cash expenses of Depreciation & Amortization (D&A) to EBIT.
Question 6
When calculating Adjusted EBITDA, which of the following is a common "add-back"
adjustment?
A) Interest Expense
B) Taxes
C) Capital Expenditures
D) Stock-Based Compensation
Correct Answer: D) Stock-Based Compensation
Rationale: Adjusted EBITDA is a metric used to normalize a company's earnings by
removing non-recurring, irregular, and certain non-cash items. Stock-Based Compensation
is a common non-cash expense that is frequently added back to EBITDA to arrive at
Adjusted EBITDA.
Question 7
Which of the following items would appear in the correct order on a standard multi-step Income
Statement?
A) Revenue, EBIT, Gross Profit, Net Income
B) Revenue, Gross Profit, EBIT, Pretax Profit
C) Gross Profit, Revenue, Pretax Profit, EBIT
D) EBITDA, EBIT, Net Income, Pretax Profit
, [Type here]
Correct Answer: B) Revenue, Gross Profit, EBIT, Pretax Profit
Rationale: A standard income statement follows a "top-down" approach. It begins with
Revenue, subtracts COGS to get Gross Profit, subtracts operating expenses and D&A to get
EBIT, adjusts for interest to get Pretax Profit, and finally subtracts taxes to get Net Income.
Question 8
Which of the following is a non-cash expense on the Income Statement?
A) Cost of Goods Sold
B) Selling, General & Administrative (SG&A)
C) Depreciation & Amortization (D&A)
D) Interest Expense
Correct Answer: C) Depreciation & Amortization (D&A)
Rationale: D&A is an accounting expense that represents the allocation of the cost of a
tangible (depreciation) or intangible (amortization) asset over its useful life. No actual cash
leaves the company for this expense in the current period.
Question 9
A company has Revenue of $1,000, COGS of $400, and Operating Expenses of $200. D&A is
$50. What is the company's Gross Profit?
A) $1,000
B) $600
C) $400
D) $350
Correct Answer: B) $600
Rationale: Gross Profit is calculated as Revenue - COGS. In this case, it is $1,000 - $400 =
$600.
Question 10
Using the information from the previous question (Revenue $1,000, COGS $400, OpEx $200,
D&A $50), what is the company's EBIT?
A) $600
B) $400
C) $350
D) $300
Correct Answer: C) $350
Rationale: EBIT is calculated as Gross Profit - Operating Expenses - D&A. First, find
Gross Profit: $1,000 - $400 = $600. Then, calculate EBIT: $600 - $200 - $50 = $350.
Question 11
Using the information from the previous questions (EBIT $350), if the company also has Interest
Expense of $30, what is its Pretax Profit?
