CSM Financial Analysis & Decision Making 2

Question 1

A company's quick ratio is 0.8. What does this indicate?

Accepted Answer

The company may struggle to meet short-term obligations without selling inventory

Answer

A quick ratio below 1.0 means current liabilities exceed liquid assets (excluding inventory), signaling potential short-term liquidity risk.

Question 2

Which capital budgeting technique accounts for the time value of money AND provides a dollar-value measure of added shareholder wealth?

Accepted Answer

Net Present Value

Answer

NPV discounts future cash flows to present value and directly measures the dollar amount of value created, making it the preferred capital budgeting method.

Question 3

A firm has EBIT of $500,000, interest expense of $100,000, and taxes of $120,000. What is net income?

Accepted Answer

$280,000

Answer

Net income = EBIT − Interest − Taxes = $500,000 − $100,000 − $120,000 = $280,000.

Question 4

In sensitivity analysis, what is a 'tornado chart' used for?

Accepted Answer

Ranking input variables by their impact on the output

Answer

A tornado chart ranks variables from most to least influential on an outcome, helping managers focus on the assumptions that matter most.

Question 5

Which ratio best measures how efficiently a company collects its receivables?

Accepted Answer

Days Sales Outstanding (DSO)

Answer

DSO measures the average number of days it takes to collect payment after a sale, directly reflecting receivables collection efficiency.

(CSM) Certified Strategic Manager Practice Test

(CSM) Certified Strategic Manager Practice Test

CSM Financial Analysis & Decision Making 2