CPHR Financial Analysis and Reporting 2 — Questions and Answers
Question 1: Which financial ratio measures how efficiently a company uses its assets to generate revenue?
- Current ratio
- Asset turnover ratio (Correct answer)
- Debt-to-equity ratio
- Price-to-earnings ratio
Correct answer: Asset turnover ratio
Asset turnover ratio (revenue ÷ total assets) measures how effectively a company generates sales from its asset base.
Question 2: 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?
- 25%
- 30% (Correct answer)
- 33%
- 40%
Correct answer: 30%
$420,000 ÷ $1,400,000 = 0.30, or 30% benefits-to-compensation ratio.
Question 3: In HR financial reporting, what does 'cost per hire' typically include?
- Only recruiter salaries
- Advertising, agency fees, relocation, and internal recruiting costs (Correct answer)
- Salary of the new hire's first month
- Benefits enrollment costs only
Correct 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.
Question 4: A company reports EBITDA of $500,000 and total debt of $2,000,000. What is the debt-to-EBITDA ratio?
- 0.25
- 2.5
- 4.0 (Correct answer)
- 25.0
Correct answer: 4.0
$2,000,000 ÷ $500,000 = 4.0, indicating the company would need 4 years of EBITDA to retire its debt.
Question 5: Which budgeting approach requires every expense to be justified from zero each budget cycle rather than using the prior year as a baseline?
- Incremental budgeting
- Zero-based budgeting (Correct answer)
- Rolling budgeting
- Activity-based budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting starts from a zero base each period, requiring justification for all expenditures regardless of prior-year history.
Question 6: What does a negative variance on an HR expense budget line item indicate?
- Actual spending was less than budgeted
- Actual spending exceeded the budgeted amount (Correct answer)
- The budget was not submitted on time
- The expense is non-recurring
Correct answer: Actual spending exceeded the budgeted amount
In expense reporting, a negative (unfavorable) variance means actual costs exceeded the budgeted amount.
Question 7: Which statement best describes the purpose of a cash flow statement in HR financial analysis?
- It shows the company's profitability over a period
- It details assets and liabilities at a point in time
- It tracks the actual inflows and outflows of cash during a period (Correct answer)
- It reconciles retained earnings from one period to the next
Correct 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.
CPHR Financial Analysis and Reporting 2
Which financial ratio measures how efficiently a company uses its assets to generate revenue?