Practice Test Geeks(CMC) Chartered Management Consultant Practice Test
← All CMC Flashcard Decks

Financial Analysis & Business Performance Flashcards

7 cards from real CMC 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 Analysis & Business Performance flashcards as text

  1. A company reports EBITDA of $5M and total debt of $20M. What is the Debt/EBITDA ratio, and what does a ratio above 4x typically signal?

    Answer: 4x; potential overleveraging that may concern lenders

    Debt/EBITDA = $20M / $5M = 4x, which often signals overleveraging as lenders typically prefer ratios below 3–4x.

  2. Which financial metric best measures how efficiently a company converts sales into actual cash received from customers?

    Answer: Days Sales Outstanding (DSO)

    DSO measures the average number of days it takes to collect receivables after a sale, reflecting collection efficiency.

  3. A consultant notices a firm's gross margin is stable at 40% but net margin has fallen from 12% to 6%. The most likely cause is:

    Answer: Increased SG&A, interest, or tax expenses below the gross profit line

    Stable gross margin with a falling net margin indicates cost pressures are occurring below the gross profit line, such as SG&A, interest, or taxes.

  4. In DuPont analysis, a company improves its ROE from 10% to 15%. If net profit margin and financial leverage are unchanged, what drove the improvement?

    Answer: Increased asset turnover

    DuPont breaks ROE into margin × asset turnover × leverage; with margin and leverage fixed, only higher asset turnover explains the ROE improvement.

  5. A business has a contribution margin ratio of 35% and fixed costs of $700,000. What is the breakeven revenue?

    Answer: $2,000,000

    Breakeven revenue = Fixed Costs / Contribution Margin Ratio = $700,000 / 0.35 = $2,000,000.

  6. When benchmarking a company's financial performance against industry peers, which of the following adjustments is most critical for comparability?

    Answer: Normalizing for one-time items and different accounting policy choices

    Normalizing for non-recurring items and accounting policy differences (e.g., LIFO vs. FIFO, capitalization vs. expensing) is essential for meaningful peer benchmarking.

  7. A manufacturing client's inventory turnover dropped from 8x to 5x year-over-year while sales remained flat. The most actionable consultant recommendation would be to:

    Answer: Investigate excess stock buildup, slow-moving SKUs, and procurement practices

    A falling inventory turnover with flat sales signals inventory is accumulating, requiring investigation of procurement, demand forecasting, and SKU rationalization.