Financial Analysis & Reporting Flashcards
7 cards from real APP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Analysis & Reporting flashcards as text
Which budgeting approach requires every expense to be justified from zero each period rather than using prior year actuals as a baseline?
Answer: Zero-based budgeting
Zero-based budgeting eliminates the assumption that prior spending is justified, forcing departments to justify every dollar from scratch each cycle.
A procurement team identifies $500,000 in cost avoidance during a fiscal year. How is this typically treated in financial reporting?
Answer: Documented as prevented cost increases, not as actual savings
Cost avoidance represents costs that were prevented (e.g., a price increase was negotiated away) but does not reduce actual spending, so it is not booked as a hard saving.
In supplier financial analysis, a low inventory turnover ratio compared to industry benchmarks most likely suggests:
Answer: Excess inventory, obsolescence risk, or weak sales
Low inventory turnover means goods sit longer before being sold, tying up cash and raising the risk of obsolescence or write-downs.
Throughput accounting in procurement decisions focuses primarily on maximizing:
Answer: Revenue minus totally variable costs, subject to system constraints
Throughput accounting, rooted in the Theory of Constraints, maximizes the rate at which the system generates money (throughput) by focusing on the binding constraint.
A variance analysis report shows a favorable material quantity variance. This means:
Answer: Less material was used than the standard quantity
A favorable quantity variance occurs when actual material used is less than the standard quantity, reducing material cost relative to the budget.
Which financial KPI would a CPO most likely use to demonstrate procurement's contribution to shareholder value?
Answer: Procurement ROI as a percentage of managed spend
Procurement ROI directly ties cost savings and value creation to managed spend, making it the most compelling financial metric for executive and board-level reporting.
When a buyer extends payment terms from net 30 to net 60, the primary financial benefit to the buying organization is:
Answer: Improved cash flow by retaining cash longer before payment is due
Extending payment terms keeps cash in the buyer's accounts longer, improving working capital and reducing short-term borrowing needs.