CBB CBB Business Operations & Profitability Assessment 2

Question 1

What does 'working capital' measure in business operations?

Accepted Answer

Current assets minus current liabilities, reflecting short-term operational liquidity

Answer

Working capital shows whether a business has sufficient liquid assets to cover its short-term obligations and sustain daily operations.

Question 2

What is the significance of reviewing a business's accounts receivable aging report during a sale?

Accepted Answer

It reveals the quality and collectability of outstanding customer invoices

Answer

An aging report shows how long invoices have been outstanding, identifying collection problems that could reduce actual cash flow.

Question 3

When assessing a business for sale, what does 'inventory turnover' indicate?

Accepted Answer

How many times inventory is sold and replaced in a given period, reflecting operational efficiency

Answer

Inventory turnover measures how efficiently a business converts inventory into sales, with low turnover indicating potential obsolescence risk.

Question 4

What does 'key man risk' mean in the context of a business being sold?

Accepted Answer

The business's vulnerability to loss if a critical person—often the owner—leaves

Answer

Key man risk refers to the danger that a business's success depends too heavily on one individual whose departure would harm operations.

Question 5

Which ratio best assesses a business's ability to meet short-term obligations?

Accepted Answer

Current ratio (current assets ÷ current liabilities)

Answer

The current ratio measures short-term liquidity by comparing liquid assets to near-term liabilities, with a ratio above 1 generally considered healthy.

(CBB) Certified Business Brokers Practice Test

(CBB) Certified Business Brokers Practice Test

CBB CBB Business Operations & Profitability Assessment 2