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
A private equity firm acquires a company at 7x EBITDA with 60% debt financing. If EBITDA grows from $10M to $14M over five years and the exit multiple remains 7x, what is the exit enterprise value?
Answer: $98M
Exit EV = Exit EBITDA × Exit Multiple = $14M × 7 = $98M, reflecting the EBITDA growth over the holding period.
Which financial statement best reveals whether a profitable company is experiencing a liquidity crisis?
Answer: Statement of cash flows
The cash flow statement shows actual cash generation and usage, exposing liquidity issues even when the income statement shows profitability.
A consultant is evaluating cost reduction options. Which of the following is an example of a structural cost reduction versus a tactical one?
Answer: Redesigning the operating model to eliminate an entire business unit
Structural cost reductions involve fundamental changes to the business model or organizational design, while tactical cuts are one-time or surface-level actions.
What does a negative working capital position (current liabilities > current assets) most likely indicate for a large retailer?
Answer: Efficient operations where customers pay before the company pays suppliers
Large retailers like grocery chains often operate with negative working capital because they collect cash at point-of-sale before paying suppliers on extended terms.
A company's WACC is 10% and a project's IRR is 8%. The correct decision is to:
Answer: Reject the project because it destroys value relative to the cost of capital
When IRR < WACC, the project's return does not cover the cost of capital, resulting in negative NPV and value destruction.
In financial modeling, which approach best handles uncertainty when forecasting a company's revenue for a new product launch?
Answer: Monte Carlo simulation using probability distributions for key drivers
Monte Carlo simulation models uncertainty by running thousands of scenarios across input distributions, providing a probability range of outcomes rather than a single estimate.
A client's return on invested capital (ROIC) is consistently below its WACC. What is the strategic implication?
Answer: The company is destroying economic value and should reconsider its capital allocation
ROIC < WACC means every dollar of capital deployed earns less than it costs, destroying economic value and signaling poor capital allocation.