FINRA Series 162 Practice Test & Mock Exam

Series 162 is Part II of Series 16, the supervisory analyst route focused on valuation of securities. It is built around whether the supervisory analyst can validate data sources, catch weak calculations, challenge unsupported assumptions, and decide whether a research conclusion has a reasonable basis. If you are searching for Series 162 sample questions, a practice test, mock exam, or simulator, this is the main Securities Prep page to start on web and continue on iOS or Android with the same account. This page includes 24 sample questions with detailed explanations so you can validate the valuation-review style before opening the full simulator.

Interactive Practice Center

Start a practice session for Series 162 below, or open the full app in a new tab. For the best experience, open the full app in a new tab and navigate with swipes/gestures or the mouse wheel—just like on your phone or tablet.

▶ Click to Load Interactive App

Open Full App in a New Tab

A small set of questions is available for free preview. Subscribers can unlock full access by signing in with the same account they use on web and mobile.

Prefer to practice on your phone or tablet? Download the Securities Prep app:

Scan for iOS (United States)

Scan for Android (United States)

• iOS: United States · Canada
• Android: United States · Canada

If you already subscribed on web or mobile, sign in with the same account here to continue on desktop.

Free diagnostic: Try the 50-question Series 162 full-length practice exam before subscribing.

What this Series 162 practice page gives you

• a direct route into the Securities Prep simulator for Series 162
• 24 blueprint-aligned sample questions focused on valuation-review decisions
• topic guidance for source validation, model logic, price-target support, and reasonable-basis review
• a clear free-preview path before you subscribe
• the same subscription across web and mobile

Series 162 exam snapshot

• Provider: FINRA
• Exam: Supervisory Analyst Qualification Examination, Part II: Valuation of Securities
• Practice reference: 50 practice questions in 120 minutes
• Registration context: valuation half of the Series 16 supervisory analyst route

Topic weighting for Series 162 practice

How Series 162 fits the stack

Series 162 is the valuation-and-reasonable-basis half of Series 16. If your weak point is disclosure rules or dissemination controls rather than model review, open Series 161 next. If you still need the research-analyst technical base first, open Series 86 .

How Series 162 differs from similar routes

How to use the Series 162 simulator efficiently

1. Start with source-checking and data-integrity drills before moving into larger valuation judgment calls.
2. Review every miss until you can explain whether the problem is a source issue, a calculation issue, or a weak conclusion.
3. Move into mixed sets once you can switch between multiples, DCF logic, forecast support, and price-target alignment smoothly.
4. Finish with timed runs so the 120-minute pace feels controlled.

Free preview vs premium

• Free preview: 24 public sample questions on this page plus the web app entry so you can validate the question style and explanation depth.
• Premium: the full Series 162 practice bank, focused drills, mixed sets, timed mock exams, detailed explanations, and progress tracking across web and mobile.

Free samples and full bank

• Live now: this exact practice route is available in Securities Prep on web, iOS, and Android.
• On-page sample set: this page includes 24 public sample questions from the current practice coverage.
• Full app: open the Securities Prep web app or mobile app for broader timed coverage.

Good next pages after Series 162

• Series 161 if you are completing the communications-and-controls half of the supervisory-analyst route
• Series 86 and Series 87 if you want the analyst-level research path beside supervisory review
• Series 16 Route Guide if you want the broader research-supervision sequence first
• FINRA if you want the wider research, specialist, and principal route map first

Free review resources

Use these free SecuritiesMastery.com resources for concept review, then return to this page when you are ready to practice in Securities Prep.

• Series 162 Cheat Sheet
• Series 162 Study Guide

Focused sample questions

Use these focused Series 162 sample-question pages when you want to isolate one official topic area before returning to the mixed simulator.

• Data and Calculation Review
• Reasonable Basis Review
• Free Series 162 Full-Length Practice Exam

24 Series 162 sample questions with detailed explanations

These 24 questions are selected from the live FINRA Series 162 practice coverage and span the main blueprint areas shown above. Use them to test readiness here, then continue into the full Securities Prep simulator for broader timed coverage.

Question 1

Topic: Function 1 — Review the Content of the Report to Assess the Accuracy, Consistency, and Sources of Data and Calculations Included in the Report

A supervisory analyst reviews a report that supports a price target with a peer-group forward EV/EBITDA median. The analyst adds back Peer A’s $45 million restructuring charge to EBITDA for comparability. Peer B had a disclosed $42 million restructuring charge from a similar plant closure in the same period, but the report leaves Peer B unadjusted and gives no reason. Which supervisory response is INCORRECT?

• A. Accept leaving Peer B unadjusted as a conservative choice.
• B. Require matching treatment or a documented reason for different treatment.
• C. Recompute the peer median after any conforming adjustment.
• D. Review whether both charges were treated as sustainable EBITDA consistently.

Best answer: A

Explanation: The issue is inconsistent comparability treatment within the peer set. When two peers have similar nonrecurring distortions, adjusting one EBITDA figure but not the other without support leaves the valuation basis unsupported, even if the unadjusted treatment seems conservative. Peer-multiple analysis depends on like-for-like inputs. Here, both peers have similar restructuring charges from similar events in the same period, yet only one peer’s EBITDA is normalized. That creates an internal consistency problem in the comp table and weakens the reasonable basis for the peer median used in the price target.

A supervisory analyst should:

• require a clear policy for what is excluded from sustainable EBITDA,
• apply that policy consistently to similarly situated peers or document why a peer is different,
• check whether the revised adjustments change the peer median and valuation support.

Calling the uneven treatment “conservative” is not enough. Selective normalization without support is still an unsupported comparability adjustment.

Question 2

Topic: Function 2 — Review the Content of the Report to Ensure a Reasonable Basis Exists for the Analyst’s Conclusions

A supervisory analyst is reviewing two EPS estimate-change memos before approving a report dated September 9, 2025. All other support is comparable.

• Estimate Set 1: 2026 EPS cut from $4.10 to $3.85 on September 9. Memo cites the company’s September 3 sales update and August shipment data released on September 6.
• Estimate Set 2: 2026 EPS cut from $4.10 to $3.85 on September 9. Memo cites management’s September 18 conference comments about weaker October demand.

Which conclusion best matches the supervisory analyst’s review?

• A. Estimate Set 2 has the stronger reasonable basis.
• B. Neither estimate set has adequate timing support.
• C. Estimate Set 1 has the stronger reasonable basis.
• D. Both estimate sets have adequate timing support.

Best answer: C

Explanation: The key review test is whether the information cited as the reason for a forecast change was available when the change was made. Estimate Set 1 uses information known before September 9, while Estimate Set 2 relies on comments made after the revision date. A supervisory analyst should verify that the timing of the evidence matches the timing of the forecast revision. If the analyst changes an EPS forecast on September 9, the stated support must come from information available by that date. Later information may confirm the analyst’s view, but it cannot be cited as the original basis for an earlier change.

• The first estimate set uses a September 3 company update and September 6 industry data to support a September 9 revision.
• The second estimate set cites September 18 management comments to justify a September 9 revision.
• That creates a clear timing mismatch in the second memo.

So only the estimate set supported by contemporaneous information has a reasonable basis on timing grounds.

Question 3

Topic: Function 1 — Review the Content of the Report to Assess the Accuracy, Consistency, and Sources of Data and Calculations Included in the Report

A supervisory analyst reviews a report that raises estimates after an announced acquisition and says the deal supports a higher price target. Two model summaries are attached:

Model A: Adds target revenue and $20 million synergies; EPS rises 5%.
Missing: purchase price allocation, amortization, inventory step-up, tax bridge.

Model B: Adds target revenue, new debt interest, and shares issued; GAAP EPS falls 2%.
Missing: schedule tying fair-value write-ups, amortization, deferred taxes, and cash flow to revised model.

Before approving the report, which follow-up is most appropriate?

• A. Require a purchase-accounting bridge to revised EPS, cash flow, and shares.
• B. Request more peer-multiple support for the higher price target.
• C. Confirm management’s public support for the synergy run rate.
• D. Expand the integration-risk discussion in the narrative.

Best answer: A

Explanation: The key issue is not whether the models show accretion or dilution; it is that neither shows how the acquisition’s accounting effects flow into the revised model. Before approval, the supervisory analyst should require a bridge from purchase-accounting assumptions to EPS, cash flow, and per-share results. When a report discusses an acquisition and revises estimates, the supervisory analyst must be able to trace the transaction’s accounting effects into the model. Here, the two models reach different earnings outcomes, but both share the same critical deficiency: neither reconciles the deal’s accounting treatment to the revised forecasts.

A proper follow-up is a transaction-accounting bridge showing how key items affect reported results, including:

• purchase price allocation and fair-value write-ups
• intangible amortization and inventory step-up effects
• deferred taxes, financing costs, and new shares
• resulting GAAP earnings, cash flow, and per-share changes

Without that tie-out, the revised estimates and price-target support cannot be checked for accuracy and consistency. More sourcing on synergies or more valuation discussion may help the report, but neither solves the missing accounting reconciliation.

Question 4

Topic: Function 2 — Review the Content of the Report to Ensure a Reasonable Basis Exists for the Analyst’s Conclusions

A supervisory analyst compares two valuation summaries for an acquisitive issuer.

• Model A: Uses next year’s pro forma EBITDA with integration-cost add-backs and full synergies to support EV/EBITDA and net debt/EBITDA comparisons, but provides no bridge from GAAP results to the pro forma figures.
• Model B: Starts with GAAP results, reconciles each adjustment, separates realized from projected synergies, and applies a consistent basis in valuation and leverage analysis.

Which statement best identifies the supervisory issue in Model A?

• A. Model A must use only GAAP results and no pro forma data.
• B. Model A is acceptable if management disclosed the pro forma figures.
• C. Model A mixes GAAP and pro forma bases without reconciliation, undermining comparability.
• D. Model A’s core deficiency is the lack of a DCF cross-check.

Best answer: C

Explanation: The issue is not the mere use of pro forma measures. The supervisory problem is that Model A compares adjusted results to GAAP-based benchmarks without a clear reconciliation and consistent analytical basis, so its leverage and valuation conclusions may lack reasonable support. The core concept is analytical discipline when using pro forma results. A supervisory analyst may approve non-GAAP or pro forma measures only if the report clearly bridges them from GAAP and then uses a consistent basis across the analysis. In Model A, integration-cost add-backs and full synergies are used to support EV/EBITDA and net debt/EBITDA, but the report does not show how those figures were derived from GAAP or whether peer and leverage comparisons are on the same basis.

A sound review should confirm:

• each adjustment is identified and supportable
• realized items are separated from projected synergies
• leverage and valuation ratios use comparable inputs
• the narrative conclusion matches the adjusted methodology

Using pro forma data can be appropriate, but only with transparent reconciliation and disciplined comparability; that is why Model B is supportable and Model A is not yet ready.

Question 5

Topic: Function 1 — Review the Content of the Report to Assess the Accuracy, Consistency, and Sources of Data and Calculations Included in the Report

An analyst revises 2025 adjusted diluted EPS for an industrial issuer and includes this bridge:

Reported diluted EPS                  3.10
Add: restructuring charge             0.18
Add: acquired-intangible amort.       0.12
Less: tax effect of adjustments      (0.06)
Adjusted diluted EPS                  3.34

The report says the items are “disclosed and non-core,” but the cited earnings release does not show the underlying line-item amounts, related tax treatment, or the diluted share count used in the adjusted EPS figure. A supervisory analyst is otherwise ready to approve the report.

Before approving, what should the supervisory analyst confirm first?

• A. The expected completion date and cash savings of the restructuring program
• B. The rationale for the peer group used in the valuation multiples
• C. The exact time horizon embedded in the published price target
• D. A reconciliation tying each adjustment, tax effect, and diluted share count to disclosed items

Best answer: D

Explanation: The missing fact is the audit trail from reported EPS to adjusted EPS. Before approval, the supervisory analyst must verify that each add-back, its tax effect, and the diluted share count tie cleanly to disclosed company amounts; otherwise the adjusted EPS figure cannot be validated. This tests financial-statement reconciliation and per-share consistency. When a report presents adjusted earnings, the supervisory analyst must be able to trace each excluded item back to a disclosed source, confirm the related tax treatment, and verify that the per-share figure uses the proper diluted denominator. Here, the cited source does not show the underlying amounts, tax effect, or share basis, so the bridge from reported diluted EPS to adjusted diluted EPS is incomplete.

Without that reconciliation, the report may be adding back the wrong amount, applying the wrong tax treatment, or using a different diluted share count for the adjusted figure than for the reported figure. Those are core accuracy and sourcing issues. Questions about restructuring timing, peer selection, or price-target horizon may matter elsewhere in the report, but they do not resolve the immediate traceability problem in the earnings bridge.

Question 6

Topic: Function 2 — Review the Content of the Report to Ensure a Reasonable Basis Exists for the Analyst’s Conclusions

A supervisory analyst reviews an initiation report on Delta Components. The report carries an Outperform rating and sets a 12-month target price of $72 using 12.0x next year’s EBITDA. The report says comparable suppliers trade at 8.5x-9.5x forward EBITDA, Delta has traded at 8.0x-10.0x over the last five years, and no company-specific catalyst or profitability advantage is discussed. Which review response is NOT appropriate?

• A. Reassess peers or add a premium rationale.
• B. Treat the Outperform rating as sufficient support.
• C. Challenge the premium versus peers and history.
• D. Request a thesis-to-multiple valuation bridge.

Best answer: B

Explanation: The target multiple is above both the stated peer range and the issuer’s historical range, so the report needs an explicit premium justification or a revised valuation basis. A positive rating alone does not provide a reasonable basis for the higher multiple. In a relative-valuation review, the supervisory analyst must be able to connect the target multiple to the report’s own peer discussion, historical context, or a clearly supported premium or discount. Here, 12.0x forward EBITDA is above the cited peer range of 8.5x-9.5x and above Delta’s 8.0x-10.0x historical range. Because the report offers no stated catalyst, margin advantage, growth premium, or balance-sheet reason for that higher multiple, the target-price bridge is incomplete. The appropriate supervisory response is to require reconciliation, revise the peer set if needed, or support the premium explicitly. A rating such as Outperform is the conclusion of the analysis; it is not evidence that the valuation input is reasonable.

Question 7

Topic: Function 1 — Review the Content of the Report to Assess the Accuracy, Consistency, and Sources of Data and Calculations Included in the Report

A supervisory analyst reviews a research report on an industrial issuer. The DCF table is arithmetically correct when recalculated, but it does not use the same discount rate stated elsewhere in the report.

Exhibit: Report excerpts

Base-case DCF discussion: WACC 9.0%; terminal growth 2.0%; 12-month price target $44
Valuation table:         WACC 8.0%; terminal growth 2.0%; implied equity value $44
Review note: Recalculation confirms the table is numerically correct using 8.0% WACC

What is the best follow-up before the report can be approved?

• A. Reconcile the intended WACC and align the model, text, and target support.
• B. Approve the report because the DCF math is internally correct.
• C. Verify the 8.0% WACC source and leave the report unchanged.
• D. Keep the table and relabel the 8.0% WACC as sensitivity analysis.

Best answer: A

Explanation: The issue is not arithmetic accuracy alone; it is inconsistency within the report’s stated base-case assumptions. Before approval, the supervisory analyst should require the analyst to identify the intended WACC and make the valuation support, narrative, and price target consistent with it. A supervisory analyst must review both numerical accuracy and cross-section consistency. Here, the DCF table works mathematically using an 8.0% WACC, but the report’s own base-case discussion says the base case uses 9.0%. That mismatch means the price target lacks a clearly stated and consistently applied basis.

• Confirm whether 8.0% or 9.0% is the intended base-case WACC.
• Revise the model or the narrative so both use the same assumption.
• Recheck whether the resulting valuation still supports the stated price target and related conclusion.

A sourced or arithmetically correct input is still not approvable if it conflicts with the report’s stated assumptions.

Question 8

Topic: Function 2 — Review the Content of the Report to Ensure a Reasonable Basis Exists for the Analyst’s Conclusions

A supervisory analyst reviews a report on a listed closed-end equity fund. The report upgrades the fund after citing improving EBITDA margins and free cash flow at several large portfolio holdings and raises the fund’s price target. It also states that the fund trades at a 9% premium to NAV and uses structural leverage, but the valuation section does not analyze those factors. Which issue is the primary reasonable-basis risk?

• A. Use of EBITDA instead of GAAP earnings for holdings
• B. Too little discussion of the sector demand outlook
• C. Omission of a longer fund volume history
• D. No bridge from portfolio fundamentals to NAV and fund-share pricing

Best answer: D

Explanation: For a packaged security, strong underlying issuer fundamentals do not by themselves justify a target on the traded vehicle. The report must show how those fundamentals affect NAV and then explain why the fund should trade at a particular premium or discount, especially when leverage is material. The core review issue is whether the report separates underlying issuer performance from vehicle-specific pricing behavior. In this scenario, the analyst relies on operating improvements at portfolio companies to support a higher target for a closed-end fund, but does not explain how those improvements change expected NAV or why the fund’s shares should continue to trade at a 9% premium to NAV. That is the primary reasonable-basis gap because closed-end-fund prices can move for reasons that differ from the fundamentals of the underlying holdings, including premium/discount shifts and leverage effects.

• First, translate holding-level fundamentals into expected portfolio value or NAV.
• Then, justify the vehicle’s market-price relationship to NAV.
• Finally, show how leverage affects the target and recommendation.

Without that bridge, the report may analyze the holdings correctly but still reach an unsupported conclusion about the packaged security itself.

Question 9

Topic: Function 1 — Review the Content of the Report to Assess the Accuracy, Consistency, and Sources of Data and Calculations Included in the Report

A supervisory analyst reviews a draft report that supports a premium EV/EBITDA multiple with a claim of market-share leadership. The only support for that claim is shown below.

Exhibit: Price-target support note

Draft text: "Issuer now holds 24% U.S. unit share."

Workpaper sources:
- ChannelScope, March 2025: 18% U.S. unit share
- RetailMetrics, March 2025: 24% U.S. unit share
- Management guidance: no market-share figure
- Draft footnote cites RetailMetrics only
- No discussion of source differences

Based on the exhibit, what is the most appropriate action before the report can be approved?

• A. Approve because one reputable third-party source is already cited.
• B. Require reconciliation or source-selection support for the 24% share.
• C. Keep 24% and add a general competition-risk disclosure.
• D. Use management guidance instead of third-party market-share data.

Best answer: B

Explanation: The exhibit shows conflicting third-party figures for the same current U.S. unit-share claim, yet the draft states 24% as fact without addressing the 18% source. Before approval, the supervisory analyst should require reconciliation or a clear explanation of why one source is more appropriate. When a research conclusion relies on third-party data, the supervisory analyst must confirm that the cited fact is both sourced and internally defensible. Here, the draft uses a 24% current U.S. unit-share figure to support a premium EV/EBITDA multiple, but the workpapers contain another third-party source for the same month showing 18%. That is a direct conflict on a material input. Before approval, the analyst should either reconcile the difference—such as by showing different coverage, sample construction, or measurement rules—or explicitly explain why RetailMetrics is the appropriate source and why ChannelScope is not comparable. If that cannot be done, the market-share statement should be revised. Simply citing one source does not eliminate an unresolved contradiction in the file.

Question 10

Topic: Function 2 — Review the Content of the Report to Ensure a Reasonable Basis Exists for the Analyst’s Conclusions

A supervisory analyst is reviewing a draft that compares two issuers’ short-term liquidity.

Discount grocer: current ratio 0.90; quick ratio 0.25; inventory turnover 19x; almost all sales are cash/card; payables average 42 days.
Industrial equipment maker: current ratio 1.15; quick ratio 0.70; inventory turnover 3x; receivables average 72 days; orders are customized and cyclical.

Which interpretation of the liquidity ratios has the strongest reasonable basis?

• A. The manufacturer appears liquid enough because its current ratio exceeds 1.0.
• B. The grocer’s low ratios may fit its model; the manufacturer needs closer review.
• C. The reported ratios alone make the two firms directly comparable.
• D. The grocer’s lower quick ratio is the clearer liquidity concern.

Best answer: B

Explanation: Liquidity ratios must be read in light of the business model, not by a simple cutoff. A grocer can operate with low current and quick ratios because inventory turns rapidly and sales convert to cash immediately, while a customized manufacturer usually needs more balance-sheet liquidity because cash is collected more slowly. Current and quick ratios are starting points, not standalone conclusions. The key review issue is how quickly the business turns working capital into cash. The grocer sells mainly for cash or card, moves inventory quickly, and can rely on supplier financing through payables, so low reported liquidity ratios may still be consistent with sound day-to-day liquidity. The equipment maker has slower inventory turnover, longer receivable collection, and customized cyclical orders, so cash is tied up longer and modest ratio levels deserve more scrutiny.

In a supervisory analyst review, the report needs a reasonable basis for its liquidity conclusion. Treating the grocer as automatically weaker solely because its quick ratio is lower would ignore the business-model context.

Question 11

Topic: Function 1 — Review the Content of the Report to Assess the Accuracy, Consistency, and Sources of Data and Calculations Included in the Report

A supervisory analyst reviews this draft report excerpt before approving a price-target update. Which comment is INCORRECT?

2026E cash-flow summary (USD millions)
Operating cash flow, after working-capital changes   240
Capital expenditures                                  90
Stated free cash flow                                150

Model note:
Accounts receivable and inventory are forecast to rise
faster than payables; net working capital is expected
to use $25 of cash in 2026.

• A. FCF ties to operating cash flow minus capex.
• B. Subtracting the $25 again in the FCF bridge would double count it.
• C. Once the math ties, working capital needs no reconciliation.
• D. The $25 working-capital use should be reflected in operating cash flow support.

Best answer: C

Explanation: The inaccurate comment is the one treating working capital as irrelevant once operating cash flow minus capex equals stated free cash flow. Here, operating cash flow is explicitly shown after working-capital changes, so the $25 use of cash must still be supported and reconciled within that line. In a supervisory analyst review, free cash flow must reconcile both mathematically and structurally. The arithmetic here is fine: operating cash flow of 240 less capex of 90 equals stated free cash flow of 150. But the model note also says net working capital uses $25 of cash, and because operating cash flow is presented after working-capital changes, that cash use should already be embedded in operating cash flow and traceable in the support.

A clean FCF bridge does not eliminate the need to confirm that receivables, inventory, and payables assumptions actually flow into operating cash flow as described. The closest trap is treating working capital as a separate deduction again, which would understate free cash flow by double counting the same cash outflow.

Question 12

Topic: Function 2 — Review the Content of the Report to Ensure a Reasonable Basis Exists for the Analyst’s Conclusions

A supervisory analyst is reviewing a report on a U.S. capital-goods exporter. The analyst raises the price target after assuming the Fed will cut short-term rates by 100bp and Congress will pass a deficit-financed spending package. The valuation also assumes a 4% weaker U.S. dollar and a 25bp lower discount rate. Which draft explanation is INCORRECT and should be challenged as unsupported?

• A. The report should explain how fiscal stimulus may affect growth expectations and Treasury yields.
• B. The report may ignore fiscal policy because only monetary policy matters to currency assumptions.
• C. The report should explain how Fed easing may lower rate differentials and pressure the dollar.
• D. The report should connect the policy mix to both the exchange-rate assumption and discount rate.

Best answer: B

Explanation: When macro assumptions materially affect valuation, the analyst must explain the combined policy mix, not just one policy lever. Monetary easing and fiscal stimulus can each affect rates, growth expectations, capital flows, and the currency, so both need to be tied to the model inputs. The key supervisory issue is whether the report provides a reasonable basis for the macro assumptions used in valuation. If the analyst relies on both Fed easing and expansionary fiscal policy to support a weaker dollar and a lower discount rate, the report should explain how each policy affects short rates, long rates, growth expectations, and exchange rates.

• Monetary policy can affect short-term rates and interest-rate differentials.
• Fiscal policy can affect deficits, Treasury supply, growth expectations, and longer-term yields.
• Together, they can influence capital flows and the currency.
• Those effects must be linked to the valuation inputs actually used.

A statement that fiscal policy does not matter to currency assumptions breaks that causal bridge and weakens the report’s reasonable basis.

Question 13

Topic: Function 1 — Review the Content of the Report to Assess the Accuracy, Consistency, and Sources of Data and Calculations Included in the Report

A supervisory analyst reviews a report stating, “Reiterate Outperform with a $60 price target, or 20% upside from the June 28, 2025 close of $50.” The valuation exhibit on the same page lists the stock’s “current price” as $44 as of June 14, 2025 and shows 36.4% implied upside, with no note explaining the different price dates. Which approval response is NOT appropriate?

• A. Recalculate implied upside after resolving the date mismatch.
• B. Require date alignment or a clear reconciliation.
• C. If retaining the older date, label and justify it.
• D. Approve because both prices are published market data.

Best answer: D

Explanation: Different price dates can materially change stated upside and make the report internally inconsistent. Before approval, the supervisory analyst should require date alignment or a clear explanation and updated calculations; the fact that both prices are real market quotes is not enough. The core review issue is market-data currency and internal consistency. When the recommendation language uses one share-price date and the valuation exhibit uses another, the report can present conflicting “current price” and implied-upside figures. A supervisory analyst should not approve the report until the analyst either updates the exhibit to the same reference date or clearly explains why a different date is being used and recalculates any affected percentages. The problem is not whether the prices are authentic quotes; it is whether the report gives readers a consistent, supportable basis for the valuation conclusion. An unchanged target price does not eliminate the need to reconcile the market-data date used in the exhibit.

Question 14

Topic: Function 2 — Review the Content of the Report to Ensure a Reasonable Basis Exists for the Analyst’s Conclusions

A supervisory analyst is reviewing a DCF-based price target for a mature U.S. packaged-food company. The report’s long-term thesis after year 5 is stable market share, no major new markets, and pricing roughly in line with a 2.5% long-run inflation outlook. Current-year revenue is projected to rise 7% from temporary pricing actions. The analyst uses a 5.0% perpetual terminal growth rate. Which review comment is INCORRECT?

• A. A terminal rate should reflect steady-state conditions, not temporary pricing.
• B. A terminal rate above inflation needs durable real-growth support.
• C. A 5.0% terminal rate looks high for this mature-business thesis.
• D. A 5.0% terminal rate is supported because it is below 7% growth.

Best answer: D

Explanation: The inaccurate comment is the one treating the 5.0% terminal rate as justified merely because it is lower than current 7% growth. Terminal growth is a perpetual steady-state assumption, so it must fit the mature-business thesis and long-run inflation backdrop, not a temporary pricing-driven year. In a DCF review, terminal growth should match the company’s expected steady state. Here, the report describes a mature domestic business with stable share, no major expansion, and pricing roughly in line with a 2.5% long-run inflation environment. That makes it weak to defend a 5.0% perpetual growth rate simply because current-year revenue is growing 7% from temporary pricing.

Near-term growth can be elevated during the explicit forecast period, but terminal growth asks what can be sustained indefinitely. If the analyst wants a terminal rate materially above inflation for a mature company, the report should identify a durable source of real growth, such as persistent volume gains, structural share gains, or new markets, and show that this fits the overall thesis. The key comparison is to steady-state economics, not a one-year spike.

Question 15

Topic: Function 1 — Review the Content of the Report to Assess the Accuracy, Consistency, and Sources of Data and Calculations Included in the Report

A supervisory analyst is reviewing a draft sector report that reproduces a table from a paid data vendor, cites trade-association market-share data published 15 months ago, and uses a CEO quotation from a magazine interview to support the price target. Which review conclusion is INCORRECT before the report can be approved?

• A. Confirm the vendor terms permit external use of the table.
• B. Identify the trade-association source and date, and assess whether newer data could change the thesis.
• C. Attribute the CEO quotation and check that later developments have not made it stale.
• D. Keep the table if the source is named, without separately checking reuse rights or timeliness.

Best answer: D

Explanation: The incorrect statement treats citation as sufficient. Before approving third-party tables, industry data, or quotations, the supervisory analyst should confirm permission to use the material, provide proper attribution, and verify that it is still current enough to support the report’s conclusion. This item tests source validation for third-party content. A supervisory analyst should not approve outside tables, industry statistics, or quotations based only on a source citation. The review should confirm that the firm has the right to reproduce or distribute the material, that the source and date are clearly attributed, and that the information remains relevant to the current thesis, rating, or price target. A paid vendor table may be subject to license limits on external distribution. Trade-association data published more than a year ago may need a check against newer releases. A quotation may be accurately sourced but still be stale if guidance, operating conditions, or management views have changed since it was made.

• Check permission or license for reproduced third-party content.
• Cite the source and date clearly.
• Verify that newer information would not materially alter the conclusion.

Attribution alone does not cure permission problems or stale support.

Question 16

Topic: Function 2 — Review the Content of the Report to Ensure a Reasonable Basis Exists for the Analyst’s Conclusions

A supervisory analyst is reviewing whether each report’s forecasting method fits the issuer’s business profile. Which statement is most accurate?

• A. A cyclical steel producer is usually better forecast on normalized mid-cycle results than on current peak-year earnings.
• B. A regulated electric utility is best forecast mainly from short-term power-price swings rather than rate-base and allowed-return trends.
• C. A pre-profit biotech with binary trial outcomes usually warrants a single deterministic forecast instead of scenario analysis.
• D. A stable consumer staples issuer is best modeled from the latest quarter rather than multi-year operating trends.

Best answer: A

Explanation: Forecasting method should match earnings stability and business visibility. For a cyclical steel producer, current-year earnings can be unusually high or low, so normalized mid-cycle results provide a more reasonable basis for valuation review. The core review issue is whether the report’s forecast method fits the company’s operating pattern. Stable, visible businesses can support direct multi-year forecasts based on recurring drivers and historical trends. By contrast, cyclical or low-visibility businesses usually require normalization, scenarios, or a longer-cycle view because current results may not represent sustainable earnings power.

A steel producer is heavily exposed to commodity and demand cycles, so using current peak-year earnings can overstate sustainable value. A supervisory analyst should generally prefer normalized mid-cycle earnings, margins, or cash flow when assessing whether the report has a reasonable basis. The key takeaway is that forecast precision should decrease as cyclicality rises and visibility falls.

Question 17

Topic: Function 1 — Review the Content of the Report to Assess the Accuracy, Consistency, and Sources of Data and Calculations Included in the Report

A supervisory analyst reviews a DCF report. For 2026, the model shows operating cash flow of $120 million and capital expenditures of $30 million. The draft notes that a $6 million working-capital build is already included in operating cash flow, yet the report states free cash flow is $84 million. Which statement is most accurate?

• A. Free cash flow of $84 million is correct because operating cash flow excludes working-capital changes.
• B. Free cash flow should be $96 million because the working-capital build should be added back before deducting capex.
• C. Free cash flow of $84 million is correct because the working-capital use should be deducted after operating cash flow.
• D. Free cash flow should be $90 million because the working-capital use is already included in operating cash flow.

Best answer: D

Explanation: When free cash flow is derived from operating cash flow, working-capital changes are already embedded in the starting figure. The correct reconciliation is $120 million minus $30 million = $90 million, so the reported $84 million double-counts the $6 million working-capital build. Free cash flow must reconcile to the chosen starting point. If the model starts with operating cash flow, changes in receivables, inventory, and payables are already reflected in that number, so they should not be adjusted again unless the report clearly rebuilds cash flow from another measure. Here, the $6 million working-capital build is explicitly stated to be already included in operating cash flow.

• Start with operating cash flow: $120 million
• Subtract capital expenditures: $30 million
• Resulting free cash flow: $90 million

A stated free cash flow of $84 million indicates the working-capital use was deducted a second time. By contrast, adding back the working-capital build would only make sense if the analyst were starting from an earnings measure rather than reported operating cash flow.

Question 18

Topic: Function 2 — Review the Content of the Report to Ensure a Reasonable Basis Exists for the Analyst’s Conclusions

A supervisory analyst reviews this report excerpt:

Core operations value (8.0x 2026E EBITDA)   $38/share
Listed subsidiary stake                     $9/share
Net cash                                    $5/share
SOTP value shown                            $52/share
Stated price target                         $50/share
Method note: "70% SOTP / 30% peer P/E blend"
Missing from report: peer P/E output and target-price bridge

Each of the following review comments is appropriate EXCEPT:

• A. Accept the stated target because it is close to the disclosed SOTP.
• B. Request clarification of whether net cash is added before or after blending.
• C. Request confirmation that both valuation legs use the same target horizon.
• D. Request the peer P/E value and the weighted math to the target.

Best answer: A

Explanation: A blended target needs a clear bridge from each valuation leg to the published price target. Here, the report shows only the SOTP output, while the peer-based leg and weighting mechanics are missing, so accepting the target based on proximity alone is the only inappropriate review comment. A supervisory analyst should be able to trace a blended or sum-of-the-parts target from disclosed component values to the published number. In this excerpt, the report provides a SOTP value and states that the target is based on a 70/30 blend, but it omits the peer P/E result and the reconciliation to the final target. Without that bridge, the reviewer cannot test the arithmetic or the consistency of the methodology.

If the blend is literal, the missing peer-based leg must be about 45.33 per share, and that figure should be shown and supported. Questions about cash treatment and horizon alignment are also valid because either issue can change the final blended target.

Question 19

Topic: Function 1 — Review the Content of the Report to Assess the Accuracy, Consistency, and Sources of Data and Calculations Included in the Report

A supervisory analyst reviews a retail research report. The analyst argues the issuer merits a premium because it owns most store locations, while peers lease most locations. To normalize occupancy structure, the peer table uses EV/EBITDAR and lease-adjusted net leverage. Which balance-sheet adjustment is NOT consistent with that approach?

• A. Treat a material pension deficit as debt-like across peers.
• B. Add lease liabilities to peer debt when leases are material.
• C. Subtract owned real estate from enterprise value without separate asset valuation.
• D. Exclude excess cash not needed for operations from net debt.

Best answer: C

Explanation: Comparability adjustments should make the peer set more economically consistent with the stated thesis and chosen multiple. Here, the report is already normalizing leased versus owned stores with EV/EBITDAR and lease-adjusted leverage, so simply stripping owned real estate out of enterprise value without a separate valuation is unsupported. A supervisory analyst should confirm that each balance-sheet adjustment improves comparability and still matches the valuation framework. In this scenario, the report is trying to normalize different occupancy structures by using EV/EBITDAR and lease-adjusted leverage. Under that approach, adding material lease liabilities, removing truly excess cash from net debt, and considering material pension deficits as debt-like can all be reasonable if applied consistently across peers.

The unsupported step is subtracting owned real estate from enterprise value with no separate asset valuation or reconciliation. Owned stores are part of the operating enterprise unless the analyst explicitly values that real estate separately and bridges the result back to the price target or peer comparison. Otherwise, the adjustment understates EV and creates an apples-to-oranges comparison.

Question 20

Topic: Function 2 — Review the Content of the Report to Ensure a Reasonable Basis Exists for the Analyst’s Conclusions

An analyst upgrades an industrial issuer to Buy and raises the price target after increasing EBITDA with projected acquisition synergies and excluding annual restructuring charges. The acquisition has not closed, the report provides no bridge from GAAP to pro forma EBITDA, and the DCF also cuts the cash tax rate from 24% to 17% while assuming net leverage falls from 3.8x to 2.5x within 12 months without source support. As the supervisory analyst, what is the best follow-up before approving the report?

• A. Require a GAAP-to-pro forma bridge and support for the tax and deleveraging assumptions before approval.
• B. Approve after identifying the adjustments as non-GAAP and analyst estimates.
• C. Ask only for support of the 17% cash tax rate change.
• D. Replace the DCF with peer multiples using the same adjustments.

Best answer: A

Explanation: The stronger valuation depends on unsupported pro forma, tax, and leverage assumptions. A supervisory analyst should not approve the report until the analyst reconciles the adjustments to reported results and documents why the lower tax rate and faster deleveraging are realistic. When tax, leverage, or pro forma adjustments materially improve a valuation, the supervisory analyst must test whether those adjustments have a reasonable basis, not merely whether they are labeled. Here, the higher price target relies on projected synergies from an unclosed acquisition, exclusions from EBITDA without a GAAP bridge, a sharply lower cash tax rate, and faster deleveraging with no identified support. Those items directly affect cash flow, multiples, and risk.

• Reconcile reported GAAP results to the adjusted metric used in valuation.
• Support the lower tax rate with a factual operating or tax basis.
• Support deleveraging with identified cash generation, asset sales, or financing plans.

Simply disclosing the adjustments as non-GAAP or switching valuation methods does not cure the lack of support.

Question 21

Topic: Function 1 — Review the Content of the Report to Assess the Accuracy, Consistency, and Sources of Data and Calculations Included in the Report

A supervisory analyst is reviewing an equity report scheduled for Monday 8:00 a.m. publication. The market-data box includes average daily trading volume and 52-week high-low, and there has been no intervening trading session since Friday’s close. Which support for those figures is NOT adequate?

• A. Friday after-close data from the primary exchange summary page
• B. Sunday verification from an established market-data vendor showing Friday close data
• C. A six-week-old investor-relations slide deck with no independent market-data check
• D. Friday cross-check between the exchange summary and a reputable vendor

Best answer: C

Explanation: Trading volume and 52-week high-low must come from a credible market-data source and remain current through publication. A six-week-old investor-relations deck without an independent current check fails both the source-quality and timeliness tests. The supervisory analyst should verify both source credibility and data currency. Trading volume and 52-week high-low are market reference data, so acceptable support typically comes from a primary exchange or an established market-data vendor, with an as-of date that still matches the latest close at publication. Here, the report is being published Monday morning and no new trading session has occurred since Friday, so Friday-close data checked after the close or over the weekend can still be timely. A six-week-old investor-relations deck is different: it is a secondary issuer document, not a current market-data source, and the figures may no longer reflect the latest trading history. The key review point is that plausible numbers are not enough; they must also be current and independently supportable.

Question 22

Topic: Function 2 — Review the Content of the Report to Ensure a Reasonable Basis Exists for the Analyst’s Conclusions

A supervisory analyst reviews a report stating that a stock recently moved above its 200-day moving average, RSI is 57, volume is only slightly above average, and sentiment is neutral. The technical section calls the setup “constructive but early,” yet the report ends with a 12-month Strong Buy recommendation driven mainly by technicals. Which follow-up is NOT appropriate before approving the report?

• A. Ask why these signals justify Strong Buy rather than Buy.
• B. Approve the report because the signals are generally positive.
• C. Require reconciliation of neutral sentiment and modest volume with the rating.
• D. Request the time horizon and trigger levels supporting the call.

Best answer: B

Explanation: The issue is not whether the technical discussion is plausible; it is whether it supports the strength of the final recommendation. Follow-ups that demand a clearer bridge from modest indicators to a Strong Buy are appropriate, while approval based only on generally positive signals is not. A supervisory analyst must test whether the analytical support matches the recommendation strength. Here, the cited technicals are constructive but limited: a move above the 200-day average and an RSI of 57 suggest some bullish momentum, but neutral sentiment and only slightly above-average volume do not clearly support the strongest positive call. That means the report needs either stronger support for why the setup merits a Strong Buy over a less aggressive rating, or revised recommendation language.

Reasonable follow-up focuses on the missing bridge between evidence and conclusion: signal strength, time horizon, confirmation levels, and why mixed or only modestly positive indicators still justify the recommendation. The key takeaway is that “plausible” technical commentary is not enough if it does not reasonably support the intensity of the final recommendation.

Question 23

Topic: Function 1 — Review the Content of the Report to Assess the Accuracy, Consistency, and Sources of Data and Calculations Included in the Report

A supervisory analyst reviews a draft earnings note that cites the issuer’s Form 10-Q. All amounts are in millions except per-share data. The 10-Q shows operating income of $150, including a $20 restructuring charge in SG&A, net income of $90, diluted shares of 45, and an effective tax rate of 25%. The draft states: “Adjusted operating income was $170 and adjusted diluted EPS was $2.44.” Each review comment below is appropriate EXCEPT:

• A. The draft should label adjusted results separately from GAAP results.
• B. Adjusted operating income of $170 is supportable if the add-back is described.
• C. Adjusted diluted EPS of $2.44 is supportable from the cited filing data.
• D. The EPS bridge should tax-effect the restructuring charge before using diluted shares.

Best answer: C

Explanation: The unsupported comment is the one accepting adjusted diluted EPS of $2.44. The restructuring charge can be added back fully to operating income because operating income is pre-tax, but EPS must use the after-tax adjustment and the reported diluted share count. This item tests reconciliation of report figures to cited filings and explained adjustments. A supervisory analyst should confirm that each non-GAAP or adjusted income statement figure ties back to the filing and that the adjustment is applied at the correct level. Here, operating income is a pre-tax measure, so adding back the disclosed $20 restructuring charge supports adjusted operating income of $170 if it is clearly labeled.

For EPS, the adjustment must be tax-affected before dividing by diluted shares. The after-tax add-back is $15, so adjusted net income is $105 and adjusted diluted EPS is $2.33. A stated adjusted EPS of $2.44 does not reconcile to the provided filing data.

If the analyst used a different tax assumption or share count, the report would need to explain and source that change clearly.

Question 24

Topic: Function 2 — Review the Content of the Report to Ensure a Reasonable Basis Exists for the Analyst’s Conclusions

A supervisory analyst reviews a report on a cyclical industrial issuer. The report projects a 12-month total return of 21%, describes the shares as ‘below-market risk,’ and cites expected alpha of 4%. The support page shows a beta of 1.50 versus the S&P 500, net debt/EBITDA of 4.6x, and no downside sensitivity discussion. Which follow-up is NOT appropriate before approving the report?

• A. Ask for downside sensitivity supporting the low-risk claim
• B. Treat projected upside as sufficient support for below-market risk
• C. Request support separating expected alpha from total risk
• D. Verify the beta benchmark and measurement period

Best answer: B

Explanation: The inappropriate follow-up is to accept the low-risk language just because the report shows attractive upside. In supervisory review, expected return and risk characterization are separate conclusions, and the stated low-risk profile needs its own analytical support. This item turns on the difference between return opportunity and risk support. A report may reasonably argue for strong expected return, positive alpha, or both, but that does not by itself establish a low-risk or defensive profile. Here, the disclosed beta of 1.50, meaningful leverage, cyclical exposure, and missing downside sensitivity all point to a need for more support before approving ‘below-market risk’ language.

Appropriate follow-up includes:

• confirming that alpha is not being used as a substitute for risk analysis
• requiring downside or sensitivity work that matches the stated risk description
• validating that the beta evidence is measured against an appropriate benchmark and period

The key takeaway is that upside potential can support a recommendation, but it cannot independently support a benign risk label.

In this section

• Series 162: Data and Calculation Review
  Try 10 focused Series 162 questions on Data and Calculation Review, with explanations, then continue with the full Securities Prep practice test.
• Series 162: Reasonable Basis Review
  Try 10 focused Series 162 questions on Reasonable Basis Review, with explanations, then continue with the full Securities Prep practice test.
• Free Series 162 Full-Length Practice Exam: 50 Questions
  Try 50 free Series 162 practice questions across the official topic areas, with answers and explanations, then continue with the full Securities Prep question bank.