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Financial Performance Measurement Flashcards

7 cards from real CPFM 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 Performance Measurement flashcards as text

  1. A company reports net income of $200,000 on average total assets of $2,000,000. What is its Return on Assets (ROA)?

    Answer: 10%

    ROA equals net income divided by average total assets, so $200,000 / $2,000,000 = 10%.

  2. Which ratio best measures a firm's ability to meet short-term obligations using only its most liquid assets?

    Answer: Quick ratio

    The quick (acid-test) ratio excludes inventory and focuses on cash, receivables, and marketable securities.

  3. In the DuPont framework, ROE is decomposed into net profit margin, asset turnover, and which third component?

    Answer: Equity multiplier

    The equity multiplier (assets/equity) captures financial leverage in the three-factor DuPont model.

  4. A positive Economic Value Added (EVA) indicates that a company has:

    Answer: Earned returns above its cost of capital

    EVA is positive when net operating profit after tax exceeds the capital charge, meaning value was created.

  5. Which performance metric is least affected by differences in capital structure across firms?

    Answer: EBIT

    EBIT is measured before interest, so it is independent of how a firm finances its operations.

  6. An increasing inventory turnover ratio generally signals:

    Answer: More efficient inventory management

    Higher turnover means inventory is sold and replaced more frequently, indicating efficiency.

  7. What does a contribution margin represent in performance analysis?

    Answer: Sales revenue minus variable costs

    Contribution margin is sales revenue less variable costs, available to cover fixed costs and profit.