Financial Analysis and Reporting Flashcards

Which financial ratio measures how efficiently a company uses its assets to generate revenue?

Answer: Asset turnover ratio

Asset turnover ratio (revenue ÷ total assets) measures how effectively a company generates sales from its asset base.

When preparing a departmental budget, HR determines that employee benefits cost $420,000 and total compensation is $1,400,000. What is the benefits-to-compensation ratio?

Answer: 30%

$420,000 ÷ $1,400,000 = 0.30, or 30% benefits-to-compensation ratio.

In HR financial reporting, what does 'cost per hire' typically include?

Answer: Advertising, agency fees, relocation, and internal recruiting costs

Cost per hire encompasses all direct and indirect expenses associated with filling a position, including advertising, fees, relocation, and internal staff time.

A company reports EBITDA of $500,000 and total debt of $2,000,000. What is the debt-to-EBITDA ratio?

Answer: 4.0

$2,000,000 ÷ $500,000 = 4.0, indicating the company would need 4 years of EBITDA to retire its debt.

Which budgeting approach requires every expense to be justified from zero each budget cycle rather than using the prior year as a baseline?

Answer: Zero-based budgeting

Zero-based budgeting starts from a zero base each period, requiring justification for all expenditures regardless of prior-year history.

What does a negative variance on an HR expense budget line item indicate?

Answer: Actual spending exceeded the budgeted amount

In expense reporting, a negative (unfavorable) variance means actual costs exceeded the budgeted amount.

Which statement best describes the purpose of a cash flow statement in HR financial analysis?

Answer: It tracks the actual inflows and outflows of cash during a period

The cash flow statement shows actual cash received and paid during a period, revealing liquidity separate from accrual-based profitability.