CBB Business Valuation & Financial Analysis 1

Question 1

Which method is commonly used to determine a business’s fair market value?

Accepted Answer

Income Approach

Answer

The income approach estimates value based on the future income a business is expected to generate.

Question 2

What financial metric is most important for determining cash flow available to a buyer?

Accepted Answer

Seller’s Discretionary Earnings (SDE)

Answer

Seller’s Discretionary Earnings (SDE) reflects true cash flow by adding back expenses not needed by a new owner.

Question 3

Which of the following is typically adjusted when calculating SDE?

Accepted Answer

Owner's compensation

Answer

Owner’s compensation is often adjusted out of the income statement to reflect transferable earnings.

Question 4

What does a high inventory turnover ratio generally indicate?

Accepted Answer

Strong product sales

Answer

High turnover means products sell quickly, which may suggest strong sales performance and inventory management.

Question 5

When using a market-based valuation, what is typically compared?

Accepted Answer

Similar business sales

Answer

This approach values a business based on sales data from similar businesses recently sold in the market.

(CBB) Certified Business Brokers Practice Test