CCIFP Construction Project Financing and Capital Structure 3

Question 1

Which financial document is most critical for a construction company seeking a surety bond?

Accepted Answer

CPA-prepared financial statements (reviewed or audited)

Answer

Sureties require CPA-prepared reviewed or audited financial statements to assess the contractor's financial strength and bonding capacity.

Question 2

The 'backlog' figure reported by construction companies represents:

Accepted Answer

Revenue remaining to be earned on signed contracts

Answer

Backlog is the dollar value of work under contract that has not yet been performed, indicating future revenue pipeline.

Question 3

In construction, the term 'underbilling' refers to a situation where:

Accepted Answer

The contractor has earned more revenue than it has billed

Answer

Underbilling (costs in excess of billings) occurs when earned revenue based on completion exceeds amounts invoiced, creating a contract asset.

Question 4

Which ratio measures the relationship between a construction company's total liabilities and its tangible net worth?

Accepted Answer

Leverage ratio (liabilities to net worth)

Answer

The leverage ratio (total liabilities / tangible net worth) is a primary surety underwriting metric indicating how much creditor capital funds operations versus owner equity.

Question 5

A construction company's 'over/under billing schedule' is used primarily to:

Accepted Answer

Reconcile contract billing status with earned revenue across all projects

Answer

The over/under billing schedule (WIP schedule) compares billed amounts to earned revenue on each project, identifying overbilled and underbilled positions.

CCIFP - Certified Construction Industry Financial Professional Practice Test

CCIFP - Certified Construction Industry Financial Professional Practice Test

CCIFP Construction Project Financing and Capital Structure 3