Financial Planning and Analysis Flashcards
7 cards from real CTP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Planning and Analysis flashcards as text
Which variance analysis framework separates total budget variance into price, efficiency, and volume components?
Answer: Three-way variance analysis
Three-way variance analysis decomposes total cost variance into price (rate), efficiency (usage), and volume (capacity) variances.
A financial plan assumes 6% annual revenue growth. At what level of revenue growth would the company reach its break-even point two years earlier than planned?
Answer: This requires sensitivity analysis on the growth rate assumption
Sensitivity analysis is the proper tool to model which revenue growth rate achieves break-even two years ahead of the base plan.
Which ratio measures a company's ability to service total debt obligations from operating earnings, commonly used in treasury covenant compliance?
Answer: Debt service coverage ratio (DSCR)
DSCR = EBITDA / (Principal + Interest payments) and measures whether operating earnings sufficiently cover all debt obligations.
In activity-based costing (ABC) applied to financial planning, overhead costs are assigned based on:
Answer: Activities that drive resource consumption
ABC traces overhead to cost objects by identifying the activities that cause costs and using activity drivers to allocate them more accurately.
A treasury professional reviewing a 5-year financial forecast notices free cash flow is negative in years 1-2 but strongly positive in years 3-5. What risk does this pattern present?
Answer: Liquidity and funding risk during the early years
Negative early FCF means the company must fund operations through external financing until cash generation turns positive, creating liquidity and refinancing risk.
When building a budget model, what is the purpose of a 'plug' or 'balancing item'?
Answer: It adjusts one balance sheet account to ensure assets equal liabilities plus equity
A plug (often cash or a revolver balance) mathematically balances the balance sheet so that assets always equal liabilities plus equity after all other items are projected.
Which approach to capital allocation uses a company's weighted average cost of capital (WACC) as the minimum acceptable rate of return for new investments?
Answer: Hurdle rate approach
The hurdle rate approach requires new investments to exceed WACC, ensuring projects generate returns above the blended cost of funding.