CCM Financial Management & Budgeting 4

Question 1

A credit manager notices a customer's accounts payable days have increased from 30 to 75 days. What does this most likely signal?

Accepted Answer

Potential liquidity problems or cash flow strain

Answer

A sharp increase in payable days often signals the customer is stretching payments to preserve cash, which can indicate underlying liquidity stress.

Question 2

Net present value (NPV) analysis is used in financial management primarily to:

Accepted Answer

Evaluate whether future cash flows justify a current investment

Answer

NPV discounts projected future cash flows back to the present using a required rate of return, and a positive NPV indicates the investment adds value.

Question 3

Which of the following best describes the concept of working capital management for a credit manager?

Accepted Answer

Balancing current assets and current liabilities to maintain liquidity

Answer

Working capital management involves optimizing the balance between current assets (receivables, inventory, cash) and current liabilities to ensure the company can meet short-term obligations.

Question 4

A company reports gross profit of $800,000 on net sales of $2,000,000. What is the gross profit margin?

Accepted Answer

40%

Answer

Gross profit margin = ($800,000 ÷ $2,000,000) × 100 = 40%, representing the percentage of revenue retained after direct production costs.

Question 5

When using the indirect method on the statement of cash flows, depreciation is added back to net income because:

Accepted Answer

It is a non-cash expense that reduced net income but did not use cash

Answer

Depreciation reduces net income on the income statement but involves no cash outflow, so it must be added back when reconciling net income to operating cash flow.

(CCM) Certified Credit Manager Practice Test

(CCM) Certified Credit Manager Practice Test

CCM Financial Management & Budgeting 4