Practice Test Geeks(CMC) Chartered Management Consultant Practice Test
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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 improves its gross margin from 30% to 38% without changing prices. Which operational change most directly explains this improvement?

    Answer: Reduction in direct material or labor costs per unit

    Gross margin is revenue minus cost of goods sold; a gross margin improvement without a price change indicates a reduction in direct production costs.

  2. Which of the following best describes the purpose of sensitivity analysis in financial modeling?

    Answer: To quantify how changes in one input affect a key output metric

    Sensitivity analysis isolates the impact of changing one variable (e.g., price, volume) on an output like NPV or profit, revealing which assumptions drive results most.

  3. A company has $10M in revenue, $4M in COGS, $3M in operating expenses, $0.5M in interest, and a 25% tax rate. What is net income?

    Answer: $1.875M

    EBIT = $10M − $4M − $3M = $3M; EBT = $3M − $0.5M = $2.5M; Net Income = $2.5M × (1 − 0.25) = $1.875M.

  4. When comparing two companies with identical revenue and EBIT, Company A uses FIFO and Company B uses LIFO in an inflationary environment. Which statement is correct?

    Answer: Company A will report lower COGS and higher net income than Company B

    Under inflation, FIFO assigns older, lower-cost inventory to COGS, resulting in lower COGS and higher reported net income compared to LIFO.

  5. A turnaround client has $2M in monthly cash burn and $6M in cash reserves. A consultant's first priority should be to:

    Answer: Quantify the runway (3 months) and identify immediate levers to extend it

    With only three months of runway, the immediate focus must be on quantifying the timeline and identifying cash conservation or generation levers before any strategic work.

  6. An analyst calculates a company's economic profit (EVA) as negative. This means:

    Answer: The company earned accounting profits but failed to cover its full cost of capital

    Negative EVA (Economic Value Added) means accounting profit was positive but insufficient to cover the opportunity cost of capital employed, destroying economic value.

  7. A management consultant recommends consolidating three regional distribution centers into one national hub. The primary financial metric to justify this recommendation would be:

    Answer: Payback period of the facility consolidation savings against closure and transition costs

    Justifying consolidation requires comparing the NPV or payback period of ongoing savings against the upfront restructuring, relocation, and transition costs.