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 commercial manager wants to assess project profitability by comparing the present value of future cash inflows to the initial investment. Which metric should be used?
Answer: Net present value (NPV)
NPV discounts all future cash flows to present value and subtracts the initial investment, providing the absolute dollar value created or destroyed by the project.
In budget management, what does the term 'budget re-forecast' refer to?
Answer: Revising the approved annual budget mid-year based on actual performance and updated assumptions
A re-forecast updates the expected year-end result using actual data to date plus revised projections, giving management a more accurate outlook than the original budget.
Which of the following best describes the concept of 'working capital' in a commercial enterprise?
Answer: Current assets minus current liabilities, representing short-term operational liquidity
Working capital measures the liquid assets available to fund day-to-day operations after covering short-term obligations.
A commercial manager calculates an Internal Rate of Return (IRR) of 18% against a cost of capital of 12%. What is the correct interpretation?
Answer: The project is acceptable because the IRR exceeds the required return, creating value
When IRR exceeds the cost of capital (hurdle rate), the project generates returns above the minimum required, indicating it adds value and should be approved.
What is the significance of a high accounts receivable days (debtor days) figure for a commercial manager?
Answer: It signals customers are taking longer to pay, which may strain the company's cash flow
High debtor days mean cash is tied up in uncollected receivables for longer periods, reducing available liquidity and potentially increasing bad debt risk.
During budget preparation, which approach involves senior management setting overall financial targets and then cascading them to departments for detailed planning?
Answer: Top-down budgeting
Top-down budgeting begins with strategic financial targets set by senior management, which are then disaggregated into departmental budgets.
A commercial manager identifies that a project's Cost Performance Index (CPI) is 1.15. What does this indicate?
Answer: The project is delivering $1.15 of earned value for every $1.00 actually spent
A CPI above 1.0 is favorable, meaning the project is under budget relative to work accomplished—each dollar spent is yielding more than a dollar of earned value.