PCM PCM Financial Management & Reporting 1 — Questions and Answers
Question 1: Which financial metric measures the percentage of total outstanding debt that a collection agency successfully recovers within a given period?
- Recovery rate (Correct answer)
- Charge-off rate
- Net present value
- Debt-to-equity ratio
Correct answer: Recovery rate
Recovery rate measures the percentage of outstanding debt successfully collected and is a primary KPI for collection managers.
Question 2: A collection manager reviewing the agency's P&L statement notices that cost per collected dollar has increased by 15% quarter-over-quarter. What is the MOST likely first step?
- Increase collector headcount immediately
- Analyze operational expense line items to identify cost drivers (Correct answer)
- Raise client fees to offset costs
- Reduce technology investments
Correct answer: Analyze operational expense line items to identify cost drivers
Analyzing expense line items identifies which cost drivers are responsible before taking corrective action.
Question 3: Which budgeting approach requires each department to justify all expenditures from scratch each budget cycle rather than basing the new budget on prior-year figures?
- Incremental budgeting
- Zero-based budgeting (Correct answer)
- Activity-based budgeting
- Rolling forecast budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting requires all expenses to be justified anew each cycle, eliminating automatic carryover of prior spending.
Question 4: A collection agency's Days Sales Outstanding (DSO) increased from 45 to 62 days. What does this indicate?
- The agency is collecting receivables faster
- Clients are paying invoices more slowly or the collection cycle has lengthened (Correct answer)
- Operating costs have decreased
- The agency's portfolio size has shrunk
Correct answer: Clients are paying invoices more slowly or the collection cycle has lengthened
A rising DSO indicates it is taking longer on average to collect payment, signaling slower cash inflows or portfolio deterioration.
Question 5: In collection agency financial reporting, which statement shows the agency's cash inflows from collections, operating expenses paid, and net cash position over a period?
- Balance sheet
- Income statement
- Cash flow statement (Correct answer)
- Statement of retained earnings
Correct answer: Cash flow statement
The cash flow statement tracks actual cash inflows and outflows during the period, including collections received and expenses paid.
Question 6: A collection manager must present variance analysis to senior leadership. A favorable variance on collector commissions means:
- Commissions paid were higher than budgeted
- Commissions paid were lower than budgeted (Correct answer)
- Commission rates were increased
- Collectors exceeded their performance targets
Correct answer: Commissions paid were lower than budgeted
A favorable expense variance means actual spending was less than budgeted, reducing overall costs.
PCM PCM Financial Management & Reporting 1
Which financial metric measures the percentage of total outstanding debt that a collection agency successfully recovers within a given period?