CPFM Financial Performance Measurement 3 — Questions and Answers
Question 1: A balanced scorecard evaluates performance across financial, customer, internal process, and which fourth perspective?
- Learning and growth (Correct answer)
- Regulatory compliance
- Shareholder voting
- Tax efficiency
Correct answer: Learning and growth
The fourth perspective in Kaplan and Norton's balanced scorecard is learning and growth.
Question 2: If a firm's times-interest-earned ratio falls below 1.0, it indicates that:
- Operating earnings cannot cover interest expense (Correct answer)
- The firm is debt-free
- Net income has doubled
- Equity exceeds liabilities
Correct answer: Operating earnings cannot cover interest expense
A ratio below 1.0 means EBIT is insufficient to pay interest, signaling solvency risk.
Question 3: Which metric measures how many days, on average, it takes to collect receivables?
- Days sales outstanding (Correct answer)
- Days payable outstanding
- Cash conversion cycle
- Inventory days
Correct answer: Days sales outstanding
Days sales outstanding (DSO) measures the average collection period for receivables.
Question 4: Residual income is calculated as net operating income minus:
- A capital charge on invested assets (Correct answer)
- Total depreciation
- Selling expenses
- Income tax expense
Correct answer: A capital charge on invested assets
Residual income subtracts a minimum required return (capital charge) from operating income.
Question 5: A high gross profit margin combined with a low net profit margin most likely indicates:
- High operating or overhead expenses (Correct answer)
- Low product pricing
- Strong cash reserves
- Low inventory levels
Correct answer: High operating or overhead expenses
When gross margin is high but net margin is low, operating and overhead costs are eroding profit.
Question 6: Which of the following is a leading indicator of future financial performance?
- Customer satisfaction scores (Correct answer)
- Prior-year net income
- Last quarter's reported EPS
- Historical dividend payments
Correct answer: Customer satisfaction scores
Customer satisfaction is a leading (predictive) indicator, while the others are lagging measures.
Question 7: The cash conversion cycle is computed as DSO plus inventory days minus:
- Days payable outstanding (Correct answer)
- Days sales outstanding
- Fixed asset turnover
- Operating margin
Correct answer: Days payable outstanding
The cash conversion cycle = DSO + inventory days − days payable outstanding.
CPFM Financial Performance Measurement 3
A balanced scorecard evaluates performance across financial, customer, internal process, and which fourth perspective?