ACE Airport Financial Management 2 — Questions and Answers
Question 1: Which financial document provides a snapshot of an airport's assets, liabilities, and net position at a specific point in time?
- Income statement
- Balance sheet (Correct answer)
- Cash flow statement
- Budget variance report
Correct answer: Balance sheet
A balance sheet (statement of net position) captures assets, liabilities, and equity at a single date.
Question 2: An airport's operating ratio is calculated by dividing total operating expenses by:
- Net income
- Total assets
- Total operating revenues (Correct answer)
- Capital expenditures
Correct answer: Total operating revenues
The operating ratio = total operating expenses ÷ total operating revenues, measuring cost efficiency.
Question 3: What does the term 'residual cost' signify in an airport use agreement?
- Airlines pay only variable costs
- Airlines cover all airport costs not recovered from other sources (Correct answer)
- Costs are split equally among tenants
- Only non-aeronautical revenues fund operations
Correct answer: Airlines cover all airport costs not recovered from other sources
Under residual cost agreements, signatory airlines are responsible for the net costs after other revenues are applied.
Question 4: Which metric measures how many times an airport can cover its annual debt service from net revenues?
- Current ratio
- Debt service coverage ratio (Correct answer)
- Quick ratio
- Leverage ratio
Correct answer: Debt service coverage ratio
The debt service coverage ratio (DSCR) = net revenues ÷ annual debt service, indicating bond repayment capacity.
Question 5: Federal grant funds received by airports through the AIP are primarily used for:
- Terminal retail concessions
- Airline employee wages
- Capital improvement projects (Correct answer)
- Marketing campaigns
Correct answer: Capital improvement projects
Airport Improvement Program (AIP) grants fund eligible capital projects such as runways, taxiways, and safety equipment.
Question 6: An airport's 'net revenue' in the context of revenue bond covenants typically means:
- Gross revenues minus all capital expenses
- Gross revenues minus operating and maintenance expenses (Correct answer)
- Total non-aeronautical revenues only
- Revenues after airline fee credits are applied
Correct answer: Gross revenues minus operating and maintenance expenses
Net revenue for bond covenant purposes equals gross revenues less operating and maintenance (O&M) expenses.
Question 7: Which budgeting approach requires managers to justify every expenditure from scratch each year rather than basing the budget on the prior year?
- Incremental budgeting
- Zero-based budgeting (Correct answer)
- Capital budgeting
- Rolling forecast budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting (ZBB) starts from zero and requires full justification for each line item every cycle.
ACE Airport Financial Management 2
Which financial document provides a snapshot of an airport's assets, liabilities, and net position at a specific point in time?