Financial Management for Project Managers Financial Reporting and Statements 2

Question 1

The statement of cash flows is divided into which three sections?

Accepted Answer

Operating, Investing, and Financing activities

Answer

The cash flow statement categorizes all cash movements into operating activities (core business), investing activities (asset purchases/sales), and financing activities (debt/equity transactions).

Question 2

Depreciation is added back to net income in the operating section of the indirect method cash flow statement because:

Accepted Answer

It is a non-cash expense that reduced net income but did not use cash

Answer

Under the indirect method, depreciation is added back to net income because it reduced reported earnings without requiring any cash payment.

Question 3

Which financial metric measures the percentage of net income remaining after all expenses, including taxes and interest, relative to total revenue?

Accepted Answer

Net profit margin

Answer

Net profit margin (net income ÷ revenue × 100) shows what percentage of each dollar of revenue ultimately becomes profit after all costs.

Question 4

On the balance sheet, retained earnings represent:

Accepted Answer

Cumulative net income kept in the business after dividends

Answer

Retained earnings are the accumulated net profits reinvested in the business over time, reduced by any dividends paid to shareholders.

Question 5

A project manager reviewing a company's financial statements notices accounts receivable has grown significantly faster than revenue. This most likely indicates:

Accepted Answer

Customers are taking longer to pay or collection problems exist

Answer

When accounts receivable grow faster than revenue, it suggests slower collections, lenient credit terms, or potential bad debt issues.

Financial Management for Project Managers Practice Test

Financial Management for Project Managers Practice Test

Financial Management for Project Managers Financial Reporting and Statements 2