Financial Acumen and Budget Control 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 Acumen and Budget Control flashcards as text
A rolling budget is best described as:
Answer: A continuously updated budget that always extends a fixed period into the future as each period passes
Rolling budgets are continuously refreshed so that the planning horizon remains constant (e.g., always 12 months ahead), improving responsiveness to changing conditions.
What does the Debt Service Coverage Ratio (DSCR) measure in a commercial context?
Answer: The ability of net operating income to cover annual debt payments
DSCR = Net Operating Income / Total Debt Service; a ratio above 1.0 indicates the entity generates sufficient income to service its debt obligations.
In contract financial management, what is the difference between a cost-plus contract and a fixed-price contract from a risk perspective?
Answer: Cost-plus contracts transfer cost risk to the buyer; fixed-price contracts transfer it to the seller
Under cost-plus, the buyer pays actual costs incurred, absorbing cost overrun risk; under fixed-price, the seller bears that risk.
A budget committee rejects a capital expenditure request because it does not meet the company's hurdle rate. What is a hurdle rate?
Answer: The minimum acceptable rate of return required for an investment to be approved
The hurdle rate (often the weighted average cost of capital) is the benchmark return below which projects are deemed not worth the risk and capital outlay.
Which financial statement shows a company's assets, liabilities, and equity at a specific point in time?
Answer: Balance sheet
The balance sheet (statement of financial position) provides a snapshot of what a company owns (assets), owes (liabilities), and the residual owner interest (equity) on a given date.
When a project experiences scope creep without a corresponding change order, the most likely financial consequence is:
Answer: Cost overruns that erode the project's profit margin
Unauthorized scope additions increase costs without a corresponding increase in contract revenue, directly compressing the project's profit margin.
What is the primary difference between capital expenditure (CapEx) and operating expenditure (OpEx) in budgeting?
Answer: CapEx involves acquiring long-term assets that are depreciated; OpEx covers day-to-day running costs expensed in the period incurred
CapEx creates long-term assets recorded on the balance sheet and depreciated over their useful lives, while OpEx is consumed in the current period and expensed immediately.