Strategic Financial Planning Flashcards

A CFO must choose between two projects with equal NPV but different risk profiles. Which tool best quantifies the risk difference?

Answer: Sensitivity analysis

Sensitivity analysis shows how changes in key assumptions affect outcomes, revealing each project's risk exposure.

Strategic financial planning should align with which overarching organizational element?

Answer: The corporate vision and mission

Effective financial strategy must support and align with the organization's vision and mission.

Which financing decision affects a firm's long-term capital structure?

Answer: Issuing long-term debt versus equity

Choosing between long-term debt and equity directly shapes the firm's capital structure and financial risk.

A strategic plan projects a funding gap in year three. What is the most appropriate proactive response?

Answer: Secure financing arrangements in advance

Identifying a future funding gap allows the firm to arrange financing proactively before liquidity is threatened.

Which ratio is most useful for assessing whether a strategic plan keeps the firm solvent over time?

Answer: Debt-to-equity ratio

The debt-to-equity ratio measures leverage and helps assess long-term solvency under a strategic plan.

In strategic planning, a 'pro forma' financial statement is best described as:

Answer: A projected statement based on assumptions

Pro forma statements are forward-looking projections built on planning assumptions.

Which factor would most likely cause a firm to revise its long-range financial plan?

Answer: A major shift in market conditions

Significant changes in market conditions warrant revisiting and revising the long-range financial plan.