Practice Test Geeks(CCM) Certified Credit Manager Practice Test
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Financial Management & Budgeting Flashcards

7 cards from real CCM 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 Management & Budgeting flashcards as text

  1. A company's contribution margin ratio is 35% and its fixed costs are $700,000. What is its break-even revenue?

    Answer: $2,000,000

    Break-even revenue = Fixed costs ÷ Contribution margin ratio = $700,000 ÷ 0.35 = $2,000,000.

  2. Which of the following is an example of a contingent liability that a credit analyst must consider when evaluating a customer?

    Answer: Pending lawsuit that may result in a large judgment

    A contingent liability such as a pending lawsuit is not yet recorded on the balance sheet but could materialize as a significant obligation, affecting the customer's creditworthiness.

  3. The DuPont formula decomposes return on equity (ROE) into which three components?

    Answer: Net profit margin, asset turnover, and equity multiplier

    The DuPont formula states ROE = Net Profit Margin × Asset Turnover × Equity Multiplier, decomposing profitability, efficiency, and leverage.

  4. In preparing a departmental budget, a credit manager should classify salaries of collections staff as which type of cost?

    Answer: Direct fixed cost

    Salaries of collections staff are a direct cost of the credit department and are fixed in nature since they do not fluctuate with collection volume in the short term.

  5. A company's quick ratio is 0.6 while its current ratio is 1.4. What explains the difference?

    Answer: The company holds a large amount of inventory or prepaid expenses

    The quick ratio excludes inventory and prepaid expenses; a large gap between the current and quick ratios typically indicates substantial illiquid current assets such as inventory.

  6. A credit manager uses a customer's free cash flow (FCF) to assess repayment ability. FCF is best defined as:

    Answer: Operating cash flow minus capital expenditures

    Free cash flow = Operating cash flow − Capital expenditures, representing the cash available after maintaining or expanding the asset base.

  7. Which financial ratio is most directly used to assess a company's ability to service its long-term debt obligations?

    Answer: Debt service coverage ratio (DSCR)

    The DSCR measures operating income relative to total debt service (principal + interest) and is the primary metric lenders use to evaluate long-term debt repayment capacity.