CPFM Financial Performance Measurement 2

Question 1

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

Accepted Answer

10%

Answer

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

Question 2

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

Accepted Answer

Quick ratio

Answer

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

Question 3

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

Accepted Answer

Equity multiplier

Answer

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

Question 4

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

Accepted Answer

Earned returns above its cost of capital

Answer

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

Question 5

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

Accepted Answer

EBIT

Answer

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

CPFM Practice Test