Mixed Deck — All CFM Topics Flashcards

What is the difference between fixed costs and variable costs?

Answer: Fixed costs remain constant regardless of production level; variable costs change proportionally with output

Fixed costs (like rent) remain constant within a relevant range regardless of output, while variable costs (like raw materials) change in proportion to production volume.

What is a leveraged buyout (LBO)?

Answer: A purchase of a company funded mostly with debt, using the target's assets as collateral

An LBO uses significant debt to fund the acquisition, with the acquired company's cash flows and assets servicing and securing the debt.

The 'acquisition premium' paid in an M&A transaction is best defined as:

Answer: The percentage by which the offer price exceeds the target's pre-announcement market price

The acquisition premium is the amount above the target's pre-deal market value that the acquirer pays, typically ranging from 20–40% for public company acquisitions, reflecting expected synergies and control value.

Which investment is typically used for short-term cash management due to its safety and liquidity?

Answer: Treasury bills (T-bills)

Treasury bills are short-term US government obligations that offer safety, high liquidity, and a known return, making them ideal for cash management.

In standard costing, a favorable variance means:

Answer: Actual cost was less than standard cost, benefiting profitability

A favorable variance occurs when actual costs are below standard (budgeted) costs, indicating more efficient performance than planned.

What consequence can result from failing to maintain proper regulatory compliance & ethics standards in Certified Finance Manager?

Answer: Loss of certification, legal penalties, and reputational damage

Non-compliance can result in serious consequences including certification revocation, legal penalties, fines, and significant reputational damage.

Why is variance analysis important?

Answer: To identify performance gaps

Variance analysis is crucial because it compares actual financial results against budgeted or standard amounts. This process helps businesses identify significant deviations, known as performance gaps, in areas like costs or revenues. By understanding these differences, management can investigate their root causes and implement corrective actions to improve operational efficiency and financial performance.

Which document outlines an organization's risk management policies?

Answer: Risk management framework

A risk management framework is a structured document that outlines an organization's comprehensive approach to identifying, assessing, mitigating, and monitoring risks. It defines the policies, procedures, roles, and responsibilities related to risk management across the entire entity. This framework ensures a systematic and consistent method for managing various types of risks.

A company generates $10M in revenue with a 15% net profit margin. If the firm's P/E ratio is 20x, what is the market capitalization?

Answer: $200 million

Net income = $10M × 15% = $1.5M; Market Cap = P/E × Net Income = 20 × $1.5M = $30M. Wait — that's $30M. Let me recalculate. P/E × EPS × shares, but using net income: 20 × $1.5M = $30M.

How does compliance reduce organizational risk?

Answer: By adhering to laws

Compliance reduces organizational risk by ensuring that the business operates within established legal and regulatory boundaries. By adhering to laws, regulations, and internal policies, organizations minimize the likelihood of legal disputes, fines, sanctions, and reputational damage. This proactive approach helps prevent costly errors and maintains the organization's integrity and stability in the market.

What is diversification in investment?

Answer: Spreading investments to reduce risk

Diversification in investment is a strategy that involves spreading investments across various assets, industries, and geographical regions. The primary goal is to reduce overall portfolio risk by ensuring that a poor performance in one investment does not severely impact the entire portfolio. By not putting all eggs in one basket, investors can mitigate specific risks and potentially achieve more stable returns.

Under US GAAP, which inventory costing method assumes the most recently purchased items are sold first?

Answer: LIFO

LIFO (Last-In, First-Out) assumes the most recently purchased inventory is sold first, which is permitted under US GAAP but not IFRS.

What does the term 'beta' measure in the context of the Capital Asset Pricing Model (CAPM)?

Answer: A stock's sensitivity to market-wide movements

Beta measures systematic (market) risk, indicating how much a stock's returns move relative to the overall market; a beta of 1.5 means the stock is 50% more volatile than the market.

Under absorption costing (full costing), which of the following is included in product cost?

Answer: Fixed manufacturing overhead

Absorption costing includes all manufacturing costs — direct materials, direct labor, variable and fixed manufacturing overhead — in the product cost per unit.

What does 'throughput' represent in the theory of constraints (TOC)?

Answer: Revenue minus totally variable costs (direct material cost)

In the theory of constraints, throughput is defined as revenue minus totally variable costs (primarily direct materials), representing the rate at which the system generates money.

What is a commercial paper (CP) program used for in corporate treasury?

Answer: Short-term unsecured borrowing by investment-grade companies to fund working capital

Commercial paper is a short-term (typically 1–270 days) unsecured promissory note issued by investment-grade companies to fund short-term working capital needs.

What does the term 'liquidity' mean in finance?

Answer: Ease of converting assets to cash

Liquidity in finance refers to the ease and speed with which an asset can be converted into cash without significantly affecting its market price. Highly liquid assets, like cash or marketable securities, can be quickly turned into cash to meet financial obligations. Businesses need sufficient liquidity to manage their short-term liabilities and operational needs effectively.

How does ongoing professional development support regulatory compliance & ethics in Certified Finance Manager?

Answer: It keeps professionals informed of evolving standards and best practices

Ongoing professional development ensures that practitioners stay current with evolving regulations, standards, and best practices in their field.

What is 'throughput costing' (also known as super-variable costing)?

Answer: A method that treats all costs except direct materials as period costs

Throughput costing, rooted in the Theory of Constraints, treats only direct materials as product costs and expenses all labor and overhead immediately, focusing on throughput contribution.

Which of the following is considered a non-dilutive source of corporate financing?

Answer: Senior secured bank loans

Senior secured bank loans are debt instruments that do not dilute existing shareholder equity, unlike equity issuances or instruments convertible into common shares.