Financial Analysis & Planning Flashcards

A company's contribution margin ratio is 40% and fixed costs are $200,000. What is the break-even revenue?

Answer: $500,000

Break-even revenue = Fixed Costs / Contribution Margin Ratio = $200,000 / 0.40 = $500,000.

Which metric best measures how efficiently a company converts revenue into profit after all expenses?

Answer: Net profit margin

Net profit margin reflects the percentage of revenue remaining after all expenses, taxes, and interest are deducted.

A firm sells 10,000 units at $50 each with variable costs of $30 per unit. What is the total contribution margin?

Answer: $200,000

Contribution margin per unit = $50 - $30 = $20; total = 20 × 10,000 = $200,000.

When a company uses absorption costing instead of variable costing, which cost is included in product cost?

Answer: Fixed manufacturing overhead

Absorption costing assigns fixed manufacturing overhead to each unit produced, unlike variable costing which expenses it in the period.

What does a Price-to-Earnings (P/E) ratio primarily indicate to a pricing analyst?

Answer: Market expectations of future earnings growth

A high P/E ratio signals that investors expect strong future earnings growth relative to current earnings.

A price increase of 5% results in a 3% volume decline. What is the approximate net revenue impact?

Answer: +1.85% revenue

Net revenue change ≈ (1.05 × 0.97) - 1 = 1.0185 - 1 = +1.85%, reflecting the combined volume and price effects.

Which financial planning tool projects future cash inflows and outflows over a specific period to assess liquidity?

Answer: Cash flow forecast

A cash flow forecast projects future cash inflows and outflows, enabling management to identify potential liquidity shortfalls.