CCM Financial Management & Budgeting 2

Question 1

A company's days sales outstanding (DSO) increased from 35 to 52 days. What is the most likely financial impact?

Accepted Answer

Increased working capital requirements

Answer

A rising DSO means cash is tied up longer in receivables, increasing the amount of working capital the company must fund.

Question 2

Which budgeting method sets all budget line items to zero and requires justification for every dollar requested?

Accepted Answer

Zero-based budgeting

Answer

Zero-based budgeting starts from zero each period and requires managers to justify every expenditure rather than adjusting prior-year figures.

Question 3

A credit manager is evaluating a customer with a current ratio of 0.8. What does this indicate?

Accepted Answer

The company may struggle to meet short-term obligations

Answer

A current ratio below 1.0 means current liabilities exceed current assets, signaling potential difficulty meeting short-term obligations.

Question 4

Under a flexible budget, what happens to the budgeted fixed costs when actual production volume exceeds the planned level?

Accepted Answer

They remain unchanged

Answer

Fixed costs by definition do not change with production volume, so they remain constant in a flexible budget regardless of actual output.

Question 5

A company's EBITDA is $5 million and its total debt is $20 million. What is the debt-to-EBITDA ratio?

Accepted Answer

4.0

Answer

Debt-to-EBITDA = $20M ÷ $5M = 4.0, indicating the company would need 4 years of EBITDA to repay its debt.

(CCM) Certified Credit Manager Practice Test