Financial Acumen and Budget Control Flashcards
6 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 6 Financial Acumen and Budget Control flashcards as text
What is the primary purpose of a budget in financial planning?
Answer: To plan and control financial resources
The primary purpose of a budget in financial planning is to provide a detailed plan for how an organization or individual will acquire and use its financial resources over a specific period. It acts as a roadmap for controlling spending, allocating funds efficiently, and tracking financial performance against set goals. This systematic approach helps ensure financial stability and progress towards objectives.
Which financial statement best reflects a company’s profitability?
Answer: Income statement
The income statement, also known as the profit and loss (P&L) statement, provides a summary of a company's revenues, expenses, and net income (or loss) over a specific period. By detailing how much revenue a company generated and what costs it incurred, it directly reflects the company's operational performance and overall profitability.
What does variance analysis compare?
Answer: Budgeted and actual performance
Variance analysis is a financial management technique used to compare the actual financial results or operational performance against the budgeted or planned figures. This comparison helps identify and understand the reasons for any differences, allowing management to take corrective actions, improve forecasting, and enhance financial control. It's a crucial tool for performance evaluation and decision-making.
Which ratio measures a company's ability to meet short-term obligations?
Answer: Current ratio
The current ratio is a liquidity ratio that measures a company's ability to meet its short-term obligations (those due within one year) with its short-term assets. It is calculated by dividing current assets by current liabilities, providing an indicator of a company's financial health and its capacity to cover immediate debts. A higher current ratio generally indicates better short-term liquidity.
Why is cash flow forecasting important?
Answer: To plan for upcoming cash needs
Cash flow forecasting is essential for effective financial management because it predicts the future inflows and outflows of cash over a specific period. This foresight allows businesses to anticipate potential cash shortages or surpluses, enabling them to plan for upcoming cash needs, manage working capital, and make informed decisions about investments or financing. It ensures the company has sufficient liquidity to operate.
What is capital expenditure (CapEx)?
Answer: Purchases of long-term assets
Capital expenditure (CapEx) refers to funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment. These are significant investments in long-term assets that are expected to provide economic benefits for more than one year, contributing to the company's productive capacity and future growth.