CBO Financial Planning & Analysis 3

Question 1

Which ratio measures how efficiently a company uses its assets to generate revenue?

Accepted Answer

Asset turnover ratio

Answer

Asset turnover ratio = Net Sales / Average Total Assets, measuring how effectively assets generate revenue.

Question 2

A company uses FIFO inventory accounting. During a period of rising prices, what effect does this have on net income compared to LIFO?

Accepted Answer

Higher net income

Answer

FIFO assigns older, lower-cost inventory to COGS first, resulting in lower COGS and higher net income when prices are rising.

Question 3

What is the purpose of a sensitivity analysis in financial planning?

Accepted Answer

To test how outcomes change when key assumptions vary

Answer

Sensitivity analysis examines how changes in one or more input variables affect a financial outcome, revealing which assumptions matter most.

Question 4

An operator calculates EBITDA at $120,000 and interest expense at $20,000, depreciation at $15,000, and taxes at $10,000. What is net income?

Accepted Answer

$75,000

Answer

Net income = EBITDA − Depreciation − Interest − Taxes = $120,000 − $15,000 − $20,000 − $10,000 = $75,000.

Question 5

Which of the following best describes the concept of working capital?

Accepted Answer

Current assets minus current liabilities

Answer

Working capital = Current Assets − Current Liabilities, representing the funds available for day-to-day operations.

(CBO) Certified Business Operator Practice Test