Financial Planning & Analysis Flashcards

A company's contribution margin ratio is 40% and fixed costs are $200,000. What is the break-even point in sales dollars?

Answer: $500,000

Break-even sales = Fixed Costs / Contribution Margin Ratio = $200,000 / 0.40 = $500,000.

Which financial statement best shows a company's ability to meet short-term obligations?

Answer: Balance sheet

The balance sheet shows current assets versus current liabilities, directly revealing short-term liquidity.

A business is evaluating a project with an initial investment of $50,000 that generates $15,000 annually. What is the payback period?

Answer: 3.33 years

Payback period = $50,000 / $15,000 per year = 3.33 years.

What does a negative free cash flow most likely indicate?

Answer: The company is investing heavily or burning cash

Negative free cash flow often means the company is spending more on capital expenditures or operations than it generates, common in growth phases.

Which budgeting approach starts from zero each period and requires justification for every expense?

Answer: Zero-based budgeting

Zero-based budgeting (ZBB) builds the budget from scratch each period, requiring justification for all expenditures.

If a company's days sales outstanding (DSO) increases significantly, what is the most likely concern?

Answer: Customers are paying more slowly

Rising DSO means it takes longer to collect receivables, which can strain cash flow and signal collection problems.

A variance analysis shows actual costs are higher than budgeted costs. This is called a:

Answer: Unfavorable variance

When actual costs exceed budgeted costs, the variance is unfavorable because it negatively impacts profit.