Business Performance Management Financial Performance Analysis

Question 1

Which financial statement reports a company's revenues, expenses, and profits over a specific period?

Accepted Answer

Income statement

Answer

The income statement (profit and loss statement) summarizes revenues earned and expenses incurred during a specific accounting period.

Question 2

EBITDA stands for:

Accepted Answer

Earnings Before Interest, Taxes, Depreciation, and Amortization

Answer

EBITDA measures core operational profitability by removing the effects of financing, taxes, and non-cash accounting charges.

Question 3

What does a 'current ratio' of less than 1.0 indicate?

Accepted Answer

The company may struggle to meet its short-term obligations with current assets

Answer

A current ratio below 1.0 means current liabilities exceed current assets, signaling potential short-term liquidity problems.

Question 4

Return on Investment (ROI) is calculated as:

Accepted Answer

(Net profit / Cost of investment) × 100

Answer

ROI measures the percentage return generated relative to the cost of the investment, calculated as (net profit / cost of investment) × 100.

Question 5

What is 'free cash flow' (FCF) in financial performance analysis?

Accepted Answer

Operating cash flow minus capital expenditures, representing cash available for discretionary use

Answer

Free cash flow measures the cash a business generates after accounting for capital expenditures needed to maintain or expand its asset base.

Business Performance Management Practice Test