CMC Financial Analysis & Business Performance 3

Question 1

Which of the following best describes the difference between operating cash flow and free cash flow (FCF)?

Accepted Answer

FCF subtracts capital expenditures from operating cash flow

Answer

Free Cash Flow = Operating Cash Flow − Capital Expenditures, representing cash available after maintaining or expanding the asset base.

Question 2

A company's current ratio is 2.5 but its quick ratio is 0.8. What does this disparity most likely indicate?

Accepted Answer

A large portion of current assets is tied up in inventory

Answer

A high current ratio with a low quick ratio indicates significant inventory in current assets, since inventory is excluded from the quick ratio calculation.

Question 3

An analyst values a company using EV/EBITDA at 8x and calculates an enterprise value of $40M. If the company has $5M in net debt, what is the implied equity value?

Accepted Answer

$35M

Answer

Equity Value = Enterprise Value − Net Debt = $40M − $5M = $35M.

Question 4

In scenario analysis for a capital investment, the consultant should weight scenarios by probability to compute:

Accepted Answer

The expected net present value (NPV) across scenarios

Answer

Probability-weighted NPV across scenarios provides the expected value of an investment, accounting for uncertainty in outcomes.

Question 5

A firm's revenue grew 20% but EBIT grew only 5%. Which metric would best explain this underperformance?

Accepted Answer

Operating leverage and cost structure analysis

Answer

Analyzing operating leverage and cost structure reveals whether fixed or variable costs are growing faster than revenue, explaining the EBIT-to-revenue gap.

(CMC) Chartered Management Consultant Practice Test

(CMC) Chartered Management Consultant Practice Test

CMC Financial Analysis & Business Performance 3