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
What does the operating leverage ratio measure?
Answer: The sensitivity of operating income to changes in sales volume
Operating leverage measures how a percentage change in sales translates into a percentage change in operating income, driven by the mix of fixed versus variable costs.
A credit manager reviews a customer's interest coverage ratio of 1.2. What risk does this present?
Answer: Moderate risk; the company barely covers its interest expense
An interest coverage ratio of 1.2 means earnings barely exceed interest obligations, leaving little buffer for earnings volatility and signaling moderate-to-high credit risk.
Which financial statement best reveals whether a profitable company is generating sufficient cash to sustain operations?
Answer: Statement of cash flows
The statement of cash flows shows actual cash generated and used in operating, investing, and financing activities, revealing liquidity independent of accrual profits.
In variance analysis, an unfavorable budget variance for sales revenue means:
Answer: Actual sales fell short of budgeted sales
An unfavorable revenue variance occurs when actual revenue is less than the budgeted amount, negatively impacting the company's financial performance.
A company wants to determine its break-even point in units. Which formula is correct?
Answer: Fixed costs ÷ Contribution margin per unit
Break-even units = Fixed costs ÷ Contribution margin per unit, where contribution margin equals selling price minus variable cost per unit.
Which ratio measures how efficiently a company converts its inventory into sales?
Answer: Inventory turnover ratio
Inventory turnover (Cost of Goods Sold ÷ Average Inventory) indicates how many times a company sells and replaces its inventory within a period.
A rolling 12-month budget differs from an annual budget primarily because it:
Answer: Is updated monthly to always cover a future 12-month horizon
A rolling budget is continuously updated by adding a new future period as the most recent period ends, maintaining a constant forward-looking time horizon.