Business Strategy & Advisory Flashcards
7 cards from real CA 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 Strategy & Advisory flashcards as text
A company with a high degree of operational gearing (high fixed costs relative to variable costs) will experience:
Answer: Greater volatility in profits as sales fluctuate
High operational gearing magnifies the impact of revenue changes on profit because fixed costs remain constant, amplifying both gains and losses.
The concept of 'first-mover advantage' is most likely to be durable when:
Answer: High switching costs lock in early customers and scale effects exist
First-mover advantages persist when switching costs and network or scale effects make it costly for customers to switch to later entrants.
In the context of strategic advisory, 'disintermediation' refers to:
Answer: Removing middlemen from the supply or distribution chain
Disintermediation eliminates intermediaries (e.g., wholesalers, brokers) so producers connect directly with end consumers, often enabled by digital technology.
When evaluating a capital investment, a CA finds the project's NPV is positive. This primarily indicates:
Answer: The project will generate cash flows exceeding the cost of capital
A positive NPV means the present value of future cash inflows exceeds the initial investment, indicating value creation above the required return.
A business advisor assessing 'cultural fit' during an M&A due diligence is primarily concerned with:
Answer: Compatibility of organizational values, management styles, and practices
Cultural misalignment is a leading cause of post-merger integration failure, as differing values and management styles impede collaboration and synergy realization.
Which of the following is a characteristic of a 'defender' organization in Miles and Snow's strategic typology?
Answer: Protecting a narrow, stable market domain with operational efficiency
Defenders focus on a narrow product-market domain and compete primarily through efficiency, quality, and cost control rather than innovation or diversification.
A client asks about the key risk in a leveraged buyout (LBO). The advisor's most critical concern is:
Answer: The target's inability to generate sufficient cash flow to service the acquisition debt
In an LBO, the target's own cash flows must service the substantial debt used in the acquisition, making cash flow adequacy the primary risk.