Strategic Planning & Analysis Flashcards

A CFO is evaluating whether to build a capability internally or acquire a company that has it. Which factor most strongly favors acquisition?

Answer: Speed to market is critical and the target has proven, hard-to-replicate assets

Acquisition makes sense when speed matters and the target offers assets that would be slow or hard to build internally.

In variance analysis, a favorable sales price variance combined with an unfavorable sales volume variance most likely suggests:

Answer: Higher prices may have reduced unit demand

Raising prices often lowers volume, so these two variances together point to a price-volume trade-off.

What is the primary purpose of a strategic 'pre-mortem' exercise?

Answer: Imagining the plan has failed and identifying the likely causes in advance

A pre-mortem assumes future failure so the team can surface risks and blind spots before committing.

When estimating terminal value in a DCF for strategic planning, using a perpetual growth rate above long-run nominal GDP growth is problematic because:

Answer: It implies the company eventually becomes larger than the economy

No firm can grow faster than the overall economy forever, so the growth assumption would overstate terminal value.

Which cost should be EXCLUDED from incremental cash flow analysis of a new product line?

Answer: Market research already completed and paid for last year

Sunk costs have already been incurred whatever is decided, so they are not relevant to the decision.

An operating leverage analysis shows that a 10% rise in sales produces a 30% rise in EBIT. What is the degree of operating leverage (DOL)?

Answer: 3.0

DOL = %change in EBIT ÷ %change in sales = 30% ÷ 10% = 3.0.

Which practice best ensures that a long-term strategic plan translates into execution?

Answer: Cascading strategic objectives into annual budgets, KPIs, and accountable owners

Linking strategy to budgets, measurable KPIs, and named owners turns plans into accountable action.