Certified Valuation Analyst (CVA) Practice Exam

In determining excess cash, which source is cited as useful?

1. Local financial publications

2. RMA

3. Industry surveys

4. Broker reports

The correct answer is: RMA

In the context of determining excess cash, relying on RMA (Risk Management Association) data is particularly beneficial because RMA provides a comprehensive database of financial ratio benchmarks and industry standards. This resource allows analysts to gauge how a company's cash position compares to its peers within the same industry. By utilizing RMA data, it becomes easier to identify whether a firm has an excess cash position relative to the operational needs and financial practices typical in that sector. Understanding industry benchmarks is crucial for assessing excess cash, as it provides a standard against which to measure a company's performance. Without a comparative framework like that offered by RMA, analysts might struggle to conclude whether a company's cash reserves are excessive, adequate, or deficient based on the context of the industry in which it operates.