CFA Practice Test 1

An investor is comparing two companies before making an investment decision. Company A has stable revenue, low debt, and moderate growth. Company B has faster revenue growth, but it also has higher debt and more unpredictable cash flows.

The investor reviews profitability, liquidity, and risk. A company may report strong sales, but if expenses are high or cash collection is weak, the business may still face financial pressure. For this reason, investors often compare several ratios instead of relying on one number.

The investor also considers diversification. Holding only one stock may create unnecessary risk. By spreading investments across different sectors, an investor may reduce the impact of poor performance from a single company.

Investment Analysis and Risk

Questions

Q1. What is the main topic of the passage?

Q2. Company B has faster revenue growth, but it also has:

Q3. Why should investors compare several ratios?

Q4. A company with strong sales but weak cash collection may face:

Q5. What does diversification mean in the passage?

Q6. If an investment grows from 1,000 to 1,100, what is the percentage return?

Q7. If a company has assets of 500 and liabilities of 200, what is equity?

Q8. Liquidity mainly refers to a company’s ability to:

Q9. Which company appears more stable based on the passage?

Q10. The author’s view of investment decisions is best described as: