Finance for Non-Finance Managers Basic Finance 5

Question 1

A non-finance manager is told the company has a high operating leverage. This means:

Accepted Answer

Fixed costs are a large proportion of total costs

Answer

High operating leverage means fixed costs are dominant; a small change in sales volume causes a proportionally larger change in operating income.

Question 2

Which section of the cash flow statement would include the purchase of new manufacturing equipment?

Accepted Answer

Investing activities

Answer

Purchases of long-term assets like equipment appear in investing activities on the cash flow statement.

Question 3

The time value of money concept states that:

Accepted Answer

A dollar received today is worth more than a dollar received in the future

Answer

A dollar today can be invested to earn returns, making it worth more than a dollar received at some point in the future.

Question 4

EBITDA is a financial metric that stands for:

Accepted Answer

Earnings Before Interest, Taxes, Depreciation, and Amortization

Answer

EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization, commonly used as a proxy for operating cash flow.

Question 5

A manager's department budget shows $50,000 in allocated overhead costs. These are most likely:

Accepted Answer

Indirect costs shared across multiple departments

Answer

Allocated overhead represents indirect costs (like building rent or utilities) spread across departments that cannot be directly traced to one area.

Finance for Non-Finance Managers Practice Test