FINRA Series 86 Practice Test & Mock Exam

Series 86 rewards candidates who can work like a research analyst: collect information, analyze the business, build or interpret forecasts, and defend the valuation or recommendation logically. If you are searching for Series 86 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 try the exam style before opening the full app question bank.

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What this Series 86 practice page gives you

• a direct route into the Securities Prep simulator for Series 86
• targeted practice around data collection, fundamental analysis, forecasting, valuation, and recommendation logic
• detailed explanations that show why the strongest analytical answer is the most defensible
• a clear free-preview path before you subscribe
• the same subscription across web and mobile

Series 86 exam snapshot

• Provider: FINRA
• Exam: Research Analyst Qualification Exam Part I
• Practice reference: 85 practice questions in 270 minutes
• Registration context: generally paired with the SIE and Series 87 for the full research-analyst path

Topic coverage for Series 86 practice

• Information and analysis: macro, industry, company data collection, and fundamental analysis
• Forecasting and valuation: modeling, forecast interpretation, valuation logic, and recommendation judgment
• Analyst workflow: moving from facts to defendable research conclusions under time pressure

How Series 86 differs from similar routes

How to use the Series 86 simulator efficiently

1. Start with analysis and valuation drills so the research workflow becomes easier to recognize.
2. Review every miss until you can explain the analytical gap, the model logic, or the valuation issue that changed the answer.
3. Move into mixed sets once you can switch between macro, company, and valuation scenarios without losing structure.
4. Finish with timed runs so the long-form 270-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 86 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 86

• Series 87 if you are completing the research-analyst path with the rules and publication half
• Series 161 and Series 162 if you are moving from analyst work into the supervisory-analyst route
• 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 86 Cheat Sheet
• Series 86 Study Guide

Focused sample questions

Use these focused Series 86 sample-question pages when you want to isolate one official topic area before returning to the mixed simulator.

• Information and Data Collection
• Data Verification and Analysis
• Valuation and Forecasting
• Free Series 86 Full-Length Practice Exam

24 Series 86 sample questions with detailed explanations

These sample questions cover multiple blueprint areas for Series 86. Use them to check your readiness here, then move into the full Securities Prep question bank for broader timed coverage.

Question 1

Topic: Function 1 — Information and Data Collection

When the Federal Reserve conducts an open market purchase of U.S. Treasury securities, what is the most likely immediate effect on banking-system liquidity and short-term interest rates?

• A. Increases reserves (liquidity) and puts downward pressure on short-term rates
• B. Decreases reserves (liquidity) and puts downward pressure on short-term rates
• C. Primarily raises long-term rates with little effect on reserves
• D. Increases reserves (liquidity) and puts upward pressure on short-term rates

Best answer: A

Explanation: Open market operations change the quantity of reserves in the banking system. When the Fed buys Treasuries, it pays by crediting reserves, which increases system liquidity. More reserves generally ease funding conditions and push short-term rates lower relative to where they otherwise would be.

Question 2

Topic: Function 2 — Data Verification and Analysis

You cover a U.S. specialty chemicals manufacturer during a high-rate, slowing-demand macro backdrop, and clients are focused on near-term free cash flow. In its latest 10-Q, management discloses a change in estimate: beginning this quarter it is extending the useful lives of certain production equipment, reducing quarterly depreciation expense, while stating capex plans are unchanged. Your model uses the indirect method for cash flow and assumes no NOLs and a constant 25% cash tax rate paid currently. With limited PP&E detail beyond total net PP&E, which modeling conclusion best reflects how this depreciation assumption change flows through the three statements?

• A. Decrease CFO and increase CFI because lower depreciation reduces the non-cash add-back and raises capex
• B. Raise net income and CFO by the full depreciation reduction, with no balance sheet impact
• C. Raise net income, increase net PP&E, and slightly reduce CFO due to higher cash taxes
• D. Leave net income unchanged, increase CFO, and reduce net PP&E

Best answer: C

Explanation: Depreciation is a non-cash expense that reduces accounting earnings but does not directly use cash. Extending useful lives lowers depreciation, increasing EBIT and net income and mechanically leaving net PP&E higher (less accumulated depreciation). Under the indirect cash flow method, the lower depreciation add-back largely offsets the higher net income, so the main cash impact is typically higher cash taxes, which reduces CFO if paid currently.

Question 3

Topic: Function 3 — Valuation and Forecasting

When forecasting gross profit by applying a gross margin assumption, let \(R\) be forecast revenue and \(GM\) be forecast gross margin (as a decimal). Which formula correctly derives forecast COGS?

• A. \(COGS = R \times GM\)
• B. \(COGS = R \times (1-GM)\)
• C. \(COGS = R - Operating\ income\)
• D. \(COGS = R - GM\)

Best answer: B

Explanation: A gross margin assumption expresses gross profit as a percent of revenue: \(GM = (R-COGS)/R\). Solving for COGS gives \(COGS = R\times(1-GM)\), which is the correct way to back into COGS when you forecast gross profit via a margin.

Question 4

Topic: Function 2 — Data Verification and Analysis

When analyzing a company’s capital structure for valuation (e.g., EV multiples and leverage), an analyst identifies a security with fixed dividends, a stated maturity, and mandatory cash redemption by the issuer. Which capital structure component is most consistent with this description and is typically treated as debt-like for risk and valuation purposes?

• A. Mandatorily redeemable preferred stock
• B. Deep in-the-money convertible notes
• C. Perpetual preferred stock with discretionary dividends
• D. Common equity

Best answer: A

Explanation: A security with a mandatory redemption date and fixed payments is economically closer to debt than equity. Analysts typically treat mandatorily redeemable preferred as debt-like when assessing leverage and enterprise value because it represents a senior claim that must be repaid in cash, increasing financial risk.

Question 5

Topic: Function 2 — Data Verification and Analysis

A research associate is analyzing the change in a company’s effective tax rate (ETR).

Exhibit (USD in millions):

The FY2024 tax footnote states that income tax expense included a $27 discrete tax benefit from releasing a valuation allowance on U.S. federal NOLs; there was no similar item in FY2025, and management indicates the geographic earnings mix was otherwise similar year over year.

Analyst A: “ETR rose from 10% to 25% mainly because FY2024 was artificially low due to the valuation allowance release.”

Analyst B: “ETR rose mainly because higher pretax income pushed the company into a higher federal tax bracket.”

Which analyst’s explanation best fits the exhibit and disclosures?

• A. Neither analyst is correct
• B. Both analysts are correct
• C. Analyst A is correct
• D. Analyst B is correct

Best answer: C

Explanation: From the exhibit, FY2024 ETR is \(18/180=10\%\) and FY2025 ETR is \(50/200=25\%\). The FY2024 footnote explicitly identifies a $27 discrete benefit from releasing a valuation allowance, which would have raised FY2024 tax expense to $45 (about a 25% ETR) absent the one-time item.

Question 6

Topic: Function 1 — Information and Data Collection

You cover a U.S. passenger airline with 85% domestic revenue. Jet fuel is 28% of operating expense, and most debt is fixed-rate with maturities beyond 5 years.

Analyst 1 recommends prioritizing real GDP/consumer spending trends and jet fuel prices. Analyst 2 recommends prioritizing 30-year mortgage rates and the U.S. Dollar Index (DXY).

Which recommendation best fits the industry’s key macro drivers?

• A. Analyst 2, because DXY is the main driver of domestic airline revenue
• B. Analyst 1, because fixed-rate debt makes interest rates the key driver
• C. Analyst 1, because demand and fuel costs are primary drivers
• D. Analyst 2, because mortgage rates drive consumer travel affordability

Best answer: C

Explanation: For airlines, top-down sensitivity is dominated by travel demand (which is cyclical with GDP/consumer spending) and by jet fuel, a large and volatile operating cost. In this scenario, the company’s mostly domestic revenue and predominantly fixed-rate, long-maturity debt reduce the relevance of FX and near-term interest-rate moves relative to demand and fuel.

Question 7

Topic: Function 1 — Information and Data Collection

You cover a U.S. homebuilder and are updating a quarterly unit-sales forecast. From 2012–2019, a regression of unit sales growth on the 30-year mortgage rate shows a strong negative correlation (high \(R^2\)). Since 2020, the macro regime has shifted (pandemic stimulus, rapid Fed tightening, then affordability-driven demand mix), and in 2022 the company changed its product mix toward smaller entry-level homes. You have only 16 post-2020 quarterly observations. Which is the single best modeling choice for using this relationship in your forecast?

• A. Rely mainly on the 2020–2024 regression since it is current
• B. Treat it as unstable; use rolling tests and scenario sensitivities
• C. Use the full 2012–2024 regression coefficient in the model
• D. Assume the high \(R^2\) implies mortgage rates cause unit sales

Best answer: B

Explanation: Correlation/regression relationships in markets can be unstable across macro regimes and company mix changes. With evidence of a potential structural break and a short post-2020 sample, the prudent approach is to test coefficient stability (e.g., rolling/segmented analysis) and use the relationship as an input to scenario/sensitivity work rather than a single fixed driver.

Question 8

Topic: Function 2 — Data Verification and Analysis

You are comparing two mid-cap software companies with similar financial profiles and leverage. Both report 15% y/y revenue growth, 25% EBITDA margins, and 4% capex as a percent of sales.

Exhibit: Selected operating evidence

Analyst 1 argues both companies should trade at similar forward EV/EBITDA multiples because current growth and margins are the same. Analyst 2 argues Company A deserves a premium multiple because its business model is meaningfully stronger.

Which observation best supports Analyst 2’s conclusion?

• A. Company B’s standalone product suggests lower execution risk because it depends on fewer partners.
• B. Company A’s contract structure and retention metrics indicate higher switching costs and a stickier revenue base.
• C. Company A’s similar EBITDA margin shows it is already fully optimized operationally.
• D. Company B’s monthly contracts imply faster revenue recognition and higher near-term reported growth.

Best answer: B

Explanation: A premium multiple is best supported by evidence that a company’s competitive position makes future cash flows more durable and less price-sensitive. Company A’s long contract terms, deep integration, and substantially higher gross and net revenue retention point to meaningful switching costs (and platform stickiness), which can justify higher valuation versus a product with easier customer churn.

Question 9

Topic: Function 2 — Data Verification and Analysis

You are reviewing a company’s FY2024 performance using its 10-K financial statements (all amounts in USD).

Exhibit (USD millions):

Based on the exhibit, which statement best evaluates the company’s financial status using growth, margin, and cash generation metrics?

• A. 20% revenue growth; operating margin flat; FCF margin improved to 10%.
• B. Despite higher revenue, FY2024 FCF fell year over year due to higher capex.
• C. 20% revenue growth; operating margin expanded to 14.4% in FY2024.
• D. FY2024 FCF margin was 15% because CFO was $180 million.

Best answer: A

Explanation: The exhibit supports calculating three core diagnostics: revenue growth, operating margin, and free cash flow (FCF) margin. Revenue rose 20% year over year, operating margin remained unchanged because operating income scaled proportionally with revenue, and FCF increased because CFO rose while capex fell, lifting FCF margin to 10%.

Question 10

Topic: Function 3 — Valuation and Forecasting

You are updating your model for a specialty retailer that reports on a fiscal year ending January 31 and provides quarterly results. Management reaffirmed annual FY2027 revenue guidance, but your model is currently annual-only and you need quarterly projections for near-term EPS and catalyst timing.

Exhibit: Last fiscal year revenue seasonality (as % of FY revenue)

• Fiscal Q1: 19%
• Fiscal Q2: 22%
• Fiscal Q3: 20%
• Fiscal Q4: 39%

What is the best next step to align projection timing with seasonality and the company’s reporting cadence?

• A. Project quarterly operating margins first, then use the implied quarterly EPS pattern to infer revenue seasonality.
• B. Build a quarterly revenue phasing schedule using fiscal-quarter seasonality and map it to the fiscal calendar before layering in margin and expense assumptions.
• C. Allocate annual FY2027 revenue evenly across the four quarters to avoid overfitting seasonality.
• D. Update the DCF using the new annual revenue guidance and back into quarterly numbers after valuation is complete.

Best answer: B

Explanation: When a company reports quarterly and has meaningful seasonality, an annual forecast must be phased into fiscal quarters in a way that matches the reporting calendar. Using historical seasonal patterns (and any updated business context) provides a defensible starting point for quarter-by-quarter revenue. Once quarterly revenue is aligned, the rest of the income statement can be modeled on the same cadence.

Question 11

Topic: Function 3 — Valuation and Forecasting

Two analysts are building a 3-year revenue forecast for a consumer internet company where revenue is driven by paid subscribers and ARPU.

• Analyst A builds revenue as prior-year revenue - a growth rate, and hardcodes the annual growth rates directly inside the revenue formula in each forecast year.
• Analyst B forecasts subscribers (beginning subs, gross adds, churn) and ARPU on a dedicated assumptions tab, labels each input with units and period, cites the source (management guidance vs historical trend), and links the income statement revenue line to those inputs.

Which approach best fits the goal of documenting key assumptions so the model can be updated consistently?

• A. Keep drivers on the income statement to minimize tabs
• B. Analyst B’s approach
• C. Use hardcoded growth rates but add a note in the revenue cell
• D. Analyst A’s approach

Best answer: B

Explanation: To update a forecast consistently, the model should separate key income statement drivers from calculations and make each input easy to find, understand, and change. A dedicated assumptions area with clear labels (units, timing) and source/rationale creates an audit trail and reduces the risk of missing embedded hardcodes. Linking revenue to subscriber and ARPU drivers makes updates systematic rather than manual.

Question 12

Topic: Function 3 — Valuation and Forecasting

A research analyst is valuing RST Corp. using a forward EV/EBITDA multiple.

Exhibit (all amounts in USD millions, except per-share):

Using the peer range, what is the implied equity value per share range for RST?

• A. $16–$20 per share
• B. $19–$23 per share
• C. $22–$26 per share
• D. $28–$32 per share

Best answer: C

Explanation: Convert the EV/EBITDA range into an enterprise value range by multiplying the multiple by next-twelve-month EBITDA. Then bridge from enterprise value to equity value by subtracting net debt. Divide the resulting equity value range by diluted shares to get an implied per-share price target range.

Question 13

Topic: Function 2 — Data Verification and Analysis

An analyst is assessing whether a manufacturer’s recent gross margin is sustainable. In its 10-K, the company discloses that reported COGS includes a nonrecurring benefit from a LIFO liquidation as inventories were drawn down, and management expects inventories to rebuild next year.

All amounts are in USD.

Exhibit: FY2025 income statement excerpt

Assuming the LIFO liquidation benefit does not recur, what is the best estimate of the sustainable gross margin for FY2025 based on the exhibit?

• A. 33%
• B. 32%
• C. 37%
• D. 35%

Best answer: A

Explanation: A LIFO liquidation temporarily lowers reported COGS and inflates gross margin because older, lower-cost inventory layers flow through COGS. To assess sustainability, remove the nonrecurring benefit by adding it back to COGS, then recompute gross margin using adjusted COGS. This produces the margin level more representative of ongoing operations if inventories rebuild.

Question 14

Topic: Function 2 — Data Verification and Analysis

A company reports COGS of 120 (in millions), beginning inventory of 18, and ending inventory of 22 for the year. Using 365 days, which choice correctly calculates inventory turnover and days inventory outstanding (DIO) and interprets the result?

• A. 0.17x turnover; ~61 DIO; inventory moving relatively quickly
• B. 5.5x turnover; ~66 DIO; inventory moving relatively quickly
• C. 6.0x turnover; ~61 DIO; inventory moving relatively quickly
• D. 6.0x turnover; ~0.02 DIO; inventory moving relatively quickly

Best answer: C

Explanation: Inventory turnover measures how many times inventory is sold/replaced and is calculated as COGS divided by average inventory. DIO converts turnover into days on hand using 365 divided by turnover. With average inventory of 20 and COGS of 120, turnover is 6.0x and DIO is about 61 days, indicating relatively efficient inventory management.

Question 15

Topic: Function 1 — Information and Data Collection

You are initiating coverage of a U.S. company that provides an integrated payment gateway plus merchant acquiring for small and mid-sized merchants. The macro backdrop is higher interest rates, but management states it does not hold meaningful customer balances and does not extend consumer credit; revenue is primarily a fee per transaction. The 10-K discloses only total net revenue and total payment volume (TPV), with no breakout by product or geography. To define the industry sector at a high level and identify its key segments/products to guide peer selection and data collection, what is the best research action?

• A. Define the sector as electronic payments and map the value chain; classify the firm in merchant acquiring/processing (gateway + acquiring) and focus on TPV, take rate, and merchant retention for comps
• B. Classify the firm in consumer finance and center the industry work on net interest margin sensitivity and credit-loss cycles
• C. Classify the firm as a card network and focus sector segmentation on authorization/clearing/settlement rails and network assessments per transaction
• D. Define the sector primarily by geographic end markets and build the segment view from GDP/FX exposure assumptions to compensate for missing disclosure

Best answer: A

Explanation: The right starting point is an industry definition that matches what the firm actually sells: merchant-facing payment acceptance and processing services (gateway and acquiring) that monetize transaction volume via fees. A payments value-chain map (issuers, networks, acquirers/processors, gateways/ISVs, fraud/risk) identifies the relevant segment and products and naturally drives peer selection and the KPIs you can support with TPV and net revenue.

Question 16

Topic: Function 2 — Data Verification and Analysis

A consumer products distributor is being valued using a DCF/FCF approach. Two analysts reach different conclusions about sustainable free cash flow (FCF).

Exhibit (USD, fiscal year):

In the 10-K, management attributes most of the payables increase to extending supplier terms from 30 to 75 days beginning in Q3 and notes it may not repeat.

Analyst 1 uses $180 ($220 CFO − $40 capex) as “run-rate FCF.” Analyst 2 adjusts CFO to remove the payables-related cash benefit before estimating run-rate FCF.

Which approach is better supported by the information provided?

• A. Analyst 1, because working-capital movements are irrelevant in an unlevered FCF valuation
• B. Analyst 1, because longer payment terms permanently increase operating profitability
• C. Analyst 2, because the payables-driven cash inflow is a timing benefit that may reverse
• D. Analyst 2, because accounts payable should be treated as debt and added to enterprise value

Best answer: C

Explanation: FCF used for valuation should reflect sustainable cash generation. A large CFO boost from stretching accounts payable is primarily a timing effect, and management indicates it may not persist. Normalizing that working-capital benefit improves comparability and reduces the risk of overstating run-rate FCF.

Question 17

Topic: Function 2 — Data Verification and Analysis

You cover AlphaCo, which historically generates 90% of revenue from high-margin recurring software subscriptions and 10% from lower-margin services. AlphaCo announces it will acquire BetaCo, a data-analytics provider with a larger professional-services component and management guidance that the deal will be “margin accretive in year 2” due to cross-sell and cost synergies.

When updating your model and investment thesis, which approach best aligns with durable, evidence-based research standards for analyzing how the acquisition may change revenue mix, cost structure, and synergies?

• A. Combine BetaCo into AlphaCo revenue immediately and apply AlphaCo’s historical margin profile for comparability
• B. Assume full run-rate synergies on close to match management’s “margin accretive in year 2” statement, then adjust if results disappoint
• C. Exclude synergy benefits and integration costs entirely to avoid subjectivity, and value the combined company using pre-deal margins
• D. Forecast legacy and acquired revenue separately, reflect mix-driven margin changes, model synergies only with support and timing, include integration costs, and show sensitivities

Best answer: D

Explanation: A sound M&A model makes the acquisition’s impact on revenue mix and cost structure explicit rather than masking it in blended averages. Synergies should be modeled conservatively: supported by evidence, phased in over time, net of integration costs, and presented with a sensitivity range to communicate uncertainty. This approach preserves comparability while remaining transparent about what is assumed versus observed.

Question 18

Topic: Function 3 — Valuation and Forecasting

You are building a 3-year model for a U.S. specialty chemicals manufacturer. Management guides capex at ~$220 million per year for the next two years, driven by a new plant that is placed in service at the start of next year; revenue is expected to be flat to up low-single digits in a “higher-for-longer” rate environment. The latest 10-K discloses straight-line depreciation with an average useful life of ~10 years, and you have beginning-of-year gross PP&E and accumulated depreciation but no asset-class detail; assume no material disposals or impairments. Which is the BEST way to forecast depreciation and amortization (D&A) consistent with these constraints?

• A. Hold D&A constant as a percent of revenue
• B. Set D&A equal to annual capex to reflect steady state
• C. Increase D&A due to higher interest rates and inflation
• D. Roll forward PP&E and apply an implied depreciation rate

Best answer: D

Explanation: D&A should be driven by the depreciable asset base and the timing/size of capex coming into service, not by revenue or macro variables. With straight-line depreciation, stable policy, and no expected disposals/impairments, a simple PP&E roll-forward using an implied depreciation rate (anchored to disclosed useful lives) is the most internally consistent approach.

Question 19

Topic: Function 2 — Data Verification and Analysis

You are updating the leverage discussion for a company and want a metric that is comparable across peers and transparent about adjustments.

Exhibit (USD, LTM):

Which approach best aligns with durable research standards when calculating and interpreting leverage?

• A. Exclude convertible debt from net debt because it may convert to equity; compute net debt/EBITDA on reported EBITDA
• B. Use gross debt/EBITDA because netting cash introduces subjectivity; discuss cash separately in qualitative commentary
• C. Compute net debt as total debt minus unrestricted cash and restricted cash; use adjusted EBITDA only for the leverage ratio
• D. Compute net debt as total debt minus unrestricted cash; show net debt/EBITDA on reported EBITDA and separately on adjusted EBITDA with a clear reconciliation

Best answer: D

Explanation: A durable leverage presentation starts with a consistent, comparable definition of net debt and then makes any EBITDA adjustments explicit. Subtracting only unrestricted cash avoids overstating liquidity available for de-levering. Showing leverage on both reported and adjusted EBITDA (with a reconciliation) makes uncertainty and judgment transparent to readers.

Question 20

Topic: Function 2 — Data Verification and Analysis

You are updating an initiation model for a U.S. public company immediately after it (1) announces the CFO’s resignation and (2) discloses that the board approved a new equity incentive plan that will increase future stock-based compensation. Which research approach best aligns with durable, evidence-based standards for sourcing and documenting these updates?

• A. Rely on the earnings-call transcript for details and update the model without tying back to SEC filings
• B. Wait for the next 10-K because it is the most comprehensive filing, then update all assumptions at once
• C. Use only the 8-K because it is the first filing after the announcement, and adjust stock-based compensation from the press release
• D. Use the 8-K for the event details, use the proxy for plan terms, and reconcile implications to the latest 10-Q/10-K

Best answer: D

Explanation: Durable research standards start with the primary SEC document best matched to the question. Material management changes are typically captured in an 8-K, while compensation plan terms are primarily disclosed in the proxy statement. Any modeling impact should be reconciled to the most recent reported financial statements in the 10-Q/10-K for comparability and transparency.

Question 21

Topic: Function 3 — Valuation and Forecasting

Which statement is most accurate/correct about equity market characteristics and price discovery?

• A. A wider bid-ask spread usually improves price discovery by discouraging short-term trading and reducing volatility.
• B. Higher liquidity generally supports more efficient price discovery because tighter spreads and deeper order books let information be incorporated with less price impact per trade.
• C. All publicly available information is reflected in prices immediately, regardless of a stock’s liquidity or trading volume.
• D. More volatile stocks generally have better price discovery because larger price swings indicate more complete information flow.

Best answer: B

Explanation: Liquidity, volatility, and information flow affect how quickly and cleanly new information gets embedded into prices. In more liquid stocks, competition among buyers and sellers narrows spreads and increases depth, so trades can transmit information with less transitory price pressure. That typically improves the efficiency of price discovery compared with thinly traded stocks.

Question 22

Topic: Function 3 — Valuation and Forecasting

A research analyst is building a catalyst-driven scenario table for AlphaCo (all amounts in USD). AlphaCo has 100 million diluted shares outstanding and net debt of $400 million.

Exhibit: 12-month catalyst scenarios (EV/EBITDA approach)

Based on the exhibit assumptions, what implied value per share should the analyst enter for the Bear scenario?

• A. $16.00
• B. $20.00
• C. $12.00
• D. $8.00

Best answer: D

Explanation: In a catalyst scenario table, each event-driven case should translate operating assumptions into an implied price using a consistent valuation bridge. Here, compute enterprise value from EBITDA and the scenario multiple, convert to equity value by subtracting net debt, and divide by diluted shares to get per-share value for the Bear case.

Question 23

Topic: Function 3 — Valuation and Forecasting

A company is building its 2026 forecast. Assume all amounts are in USD millions, interest accrues on outstanding principal, and intra-year changes occur on the dates shown. Ignore debt issuance costs and amortization.

Exhibit: 2026E debt schedule and rate assumptions

Based on the exhibit, what 2026E cash interest expense is best supported (rounded to one decimal place)?

• A. 43.0
• B. 40.9
• C. 46.8
• D. 45.2

Best answer: D

Explanation: Cash interest should be projected by applying each tranche’s contractual rate to the time-weighted principal outstanding during the year. Fixed-rate notes accrue for the full year on the full principal, while the term loan repayment and revolver borrowing require proration by the portion of the year each balance is outstanding. Using the assumed SOFR converts the floating-rate spreads into all-in annual rates.

Question 24

Topic: Function 2 — Data Verification and Analysis

You are refreshing a DCF model after a company’s 2Q 10-Q. EBITDA rose by $10 million QoQ, but cash flow from operations (CFO) rose by $220 million. Management highlights “better working capital.”

Exhibit: 2Q CFO drivers (QoQ)

Footnotes disclose (1) $150 million of accounts receivable were sold in a non-recourse program in 2Q, and (2) supplier finance obligations increased to $120 million from $40 million last quarter.

Before updating the valuation conclusion, what is the best next step?

• A. Verify the drivers in the footnotes and normalize FCF by removing the receivables-sale benefit and treating supplier finance as debt-like when computing net debt
• B. Leave CFO as reported because the receivables sale is non-recourse, then update the price target using EV/EBITDA multiples
• C. Update the valuation using management’s full-year CFO guidance first, then investigate the working capital details if the stock reacts
• D. Lower the forecast net working capital requirement to reflect the “improved” receivables and payables trends and rerun the DCF

Best answer: A

Explanation: Working-capital-driven CFO spikes can be non-recurring or financing-related rather than true operating improvement. A receivables sale pulls future cash forward, and supplier finance can be debt-like even if presented in working capital. The right sequence is to confirm these mechanics in the filing and normalize cash flow and net debt before drawing valuation conclusions.

Series 86 research analysis map

Use this map after the sample questions to connect individual items to financial statement analysis, industry review, valuation, forecasting, risk assessment, and recommendation support these Securities Prep samples test.

    flowchart LR
	  S1["Company data or market thesis"] --> S2
	  S2["Analyze financial statements and industry position"] --> S3
	  S3["Build forecast valuation and sensitivity view"] --> S4
	  S4["Assess catalysts risks and downside case"] --> S5
	  S5["Support rating target or conclusion"] --> S6
	  S6["Check assumptions and evidence quality"]

Quick Cheat Sheet

Mini Glossary

• Research report: Written analysis with investment views, disclosures, conflicts, and supervisory requirements.
• Underwriting: Investment banking process for structuring, pricing, distributing, and settling offerings.
• Communications: Retail and institutional content subject to approval, recordkeeping, and fair-balanced standards.
• Order handling: Process for receiving, routing, executing, modifying, and documenting orders.
• Supervision: Firm process for review, approval, escalation, and evidence of compliance.

In this section

• Series 86: Information and Data Collection
  Try 10 focused Series 86 questions on Information and Data Collection, with explanations, then continue with the full Securities Prep practice test.
• Series 86: Data Verification and Analysis
  Try 10 focused Series 86 questions on Data Verification and Analysis, with explanations, then continue with the full Securities Prep practice test.
• Series 86: Valuation and Forecasting
  Try 10 focused Series 86 questions on Valuation and Forecasting, with explanations, then continue with the full Securities Prep practice test.
• Free Series 86 Full-Length Practice Exam: 85 Questions
  Try 85 free Series 86 practice questions across the official topic areas, with answers and explanations, then continue with the full Securities Prep question bank.