CMC Financial Analysis & Business Performance 2

Question 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?

Accepted Answer

4x; potential overleveraging that may concern lenders

Answer

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

Question 2

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

Accepted Answer

Days Sales Outstanding (DSO)

Answer

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

Question 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:

Accepted Answer

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

Answer

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.

Question 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?

Accepted Answer

Increased asset turnover

Answer

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

Question 5

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

Accepted Answer

$2,000,000

Answer

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

(CMC) Chartered Management Consultant Practice Test

(CMC) Chartered Management Consultant Practice Test

CMC Financial Analysis & Business Performance 2