Corporate Governance & Financial Management 2

Question 1

Which financial metric best measures a company's ability to generate cash from its core operations without capital expenditures?

Accepted Answer

Operating cash flow

Answer

Operating cash flow measures cash generated purely from core business operations before capital expenditures are deducted.

Question 2

A board's audit committee is reviewing an unusually large related-party transaction. What is the committee's PRIMARY governance responsibility?

Accepted Answer

Ensure independent review and assess whether terms are arm's-length

Answer

The audit committee must independently assess related-party transactions to ensure they are conducted on arm's-length terms and do not disadvantage the company.

Question 3

Under the Sarbanes-Oxley Act Section 302, who must certify the accuracy of a public company's financial reports?

Accepted Answer

The CEO and CFO

Answer

SOX Section 302 requires the CEO and CFO to personally certify the accuracy of financial statements filed with the SEC.

Question 4

A company's debt-to-equity ratio rises sharply over two quarters. From a governance perspective, what is the board's most important next step?

Accepted Answer

Review the company's capital structure policy and risk tolerance

Answer

A rising debt-to-equity ratio signals increased financial leverage risk, requiring the board to evaluate whether the capital structure aligns with approved risk tolerance.

Question 5

Which concept describes the financial risk that arises when a company's fixed costs remain constant regardless of revenue fluctuations?

Accepted Answer

Operating leverage

Answer

Operating leverage refers to the amplification of profit changes relative to revenue changes due to high fixed costs.

Corporate Governance Practice Test

Corporate Governance Practice Test

Corporate Governance & Financial Management 2