Business Plan Financial Projections 2 — Questions and Answers
Question 1: What does EBITDA stand for?
- Earnings Before Interest, Taxes, Depreciation, and Amortization (Correct answer)
- Estimated Budget Including Tax, Debt, and Assets
- Equity Based Income Tax Deduction Amount
- Earnings Before International Trade and Domestic Adjustments
Correct answer: Earnings Before Interest, Taxes, Depreciation, and Amortization
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, used to evaluate operating performance.
Question 2: What is the purpose of a sensitivity analysis in financial projections?
- To show best-case revenue only
- To test how outcomes change under different assumptions (Correct answer)
- To calculate employee benefits
- To project competitor pricing
Correct answer: To test how outcomes change under different assumptions
Sensitivity analysis tests how financial outcomes change when key assumptions (like sales volume or price) vary.
Question 3: What is a capital expenditure (CapEx) in a business plan?
- Monthly payroll costs
- Funds spent on long-term assets like equipment or property (Correct answer)
- Short-term operational expenses
- Marketing budget allocation
Correct answer: Funds spent on long-term assets like equipment or property
Capital expenditures are funds used to acquire or upgrade long-term physical assets such as equipment, buildings, or technology.
Question 4: What does gross margin represent?
- Revenue minus all expenses
- Revenue minus cost of goods sold, expressed as a percentage (Correct answer)
- Net profit after taxes
- Total assets minus liabilities
Correct answer: Revenue minus cost of goods sold, expressed as a percentage
Gross margin is revenue minus cost of goods sold (COGS), expressed as a percentage of revenue.
Question 5: Which metric shows how efficiently a company collects receivables?
- Days Sales Outstanding (DSO) (Correct answer)
- Return on Equity
- Debt Service Coverage Ratio
- Inventory Turnover
Correct answer: Days Sales Outstanding (DSO)
Days Sales Outstanding (DSO) measures the average number of days it takes to collect payment after a sale.
Question 6: In a 3-year financial projection, what is the typical first year focus?
- Long-term debt repayment
- Establishing baseline costs, revenue ramp-up, and initial cash needs (Correct answer)
- Maximizing dividend payouts
- Expanding international operations
Correct answer: Establishing baseline costs, revenue ramp-up, and initial cash needs
The first year of projections typically focuses on establishing cost baselines, ramping up revenue, and identifying initial cash needs.
Business Plan Financial Projections 2
What does EBITDA stand for?