Business Advisory & Consulting Flashcards
7 cards from real ABA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Business Advisory & Consulting flashcards as text
A retail client has an inventory turnover ratio of 3.2 compared to the industry average of 6.8. What business advisory recommendation is most appropriate?
Answer: Investigate slow-moving SKUs, improve demand forecasting, and consider markdowns
A turnover ratio far below the industry average signals excess or obsolete inventory, which ties up working capital and increases carrying costs.
In consulting, a 'quick win' during the early stage of an engagement primarily serves which purpose?
Answer: Building client trust and demonstrating value while longer-term initiatives are developed
Early quick wins demonstrate advisor competence and build client confidence, creating buy-in for the deeper changes that take longer to implement.
A business advisor uses regression analysis to forecast next year's sales. The R² value is 0.91. How should the advisor interpret this result?
Answer: 91% of the variation in sales is explained by the independent variable(s) in the model
R² (coefficient of determination) measures the proportion of variance in the dependent variable explained by the independent variable(s), so 0.91 means 91% of sales variation is captured by the model.
A client is considering a price reduction strategy to gain market share. Which economic concept should the advisor evaluate first to assess revenue impact?
Answer: Price elasticity of demand
Price elasticity of demand measures how sensitive unit sales volume is to a price change, determining whether total revenue will rise or fall with a lower price.
During a business valuation engagement, you apply the income approach using a capitalization of earnings method. Which rate is used as the divisor to convert a single earnings figure into value?
Answer: Capitalization rate
The capitalization rate (cap rate) is used as the divisor in the income capitalization method, representing the relationship between income and value for a stable, ongoing earnings stream.
A business owner wants to exit within five years and asks you to maximize value before sale. Which strategy most directly increases enterprise value?
Answer: Growing recurring revenue streams, improving EBITDA margins, and reducing customer concentration
Buyers and appraisers value businesses primarily on sustainable EBITDA, revenue quality (recurring vs. one-time), and risk diversification; these factors directly drive multiples and enterprise value.
A nonprofit client hires you as a business advisor. Which financial metric is most analogous to profit margin in a for-profit setting?
Answer: Fund balance increase as a percentage of total revenue
The increase in net assets (fund balance) as a percentage of total revenue measures financial surplus efficiency in nonprofits, paralleling profit margin in for-profit entities.