CTP Financial Planning and Analysis 4

Question 1

Which variance analysis framework separates total budget variance into price, efficiency, and volume components?

Accepted Answer

Three-way variance analysis

Answer

Three-way variance analysis decomposes total cost variance into price (rate), efficiency (usage), and volume (capacity) variances.

Question 2

A financial plan assumes 6% annual revenue growth. At what level of revenue growth would the company reach its break-even point two years earlier than planned?

Accepted Answer

This requires sensitivity analysis on the growth rate assumption

Answer

Sensitivity analysis is the proper tool to model which revenue growth rate achieves break-even two years ahead of the base plan.

Question 3

Which ratio measures a company's ability to service total debt obligations from operating earnings, commonly used in treasury covenant compliance?

Accepted Answer

Debt service coverage ratio (DSCR)

Answer

DSCR = EBITDA / (Principal + Interest payments) and measures whether operating earnings sufficiently cover all debt obligations.

Question 4

In activity-based costing (ABC) applied to financial planning, overhead costs are assigned based on:

Accepted Answer

Activities that drive resource consumption

Answer

ABC traces overhead to cost objects by identifying the activities that cause costs and using activity drivers to allocate them more accurately.

Question 5

A treasury professional reviewing a 5-year financial forecast notices free cash flow is negative in years 1-2 but strongly positive in years 3-5. What risk does this pattern present?

Accepted Answer

Liquidity and funding risk during the early years

Answer

Negative early FCF means the company must fund operations through external financing until cash generation turns positive, creating liquidity and refinancing risk.

Certified Treasury Professional Exam Practice Test

Certified Treasury Professional Exam Practice Test

CTP Financial Planning and Analysis 4