Introduction to Business Flashcards

Which of the following best defines 'gross profit margin'?

Answer: (Revenue minus cost of goods sold) divided by revenue

Gross profit margin measures the percentage of revenue remaining after subtracting the direct cost of producing goods or services.

A turnaround professional is hired to assess a distressed manufacturer. Their FIRST priority should be:

Answer: Stabilizing cash flow and securing immediate liquidity

Stabilizing cash flow is always the first step in a turnaround to stop the bleeding and buy time for deeper restructuring.

What is 'accounts receivable days' (DSO) used to measure?

Answer: The average number of days it takes to collect payment from customers

Days Sales Outstanding (DSO) measures the efficiency of a company's credit and collection process.

Which business theory suggests that a company should focus on its core competencies and outsource non-essential activities?

Answer: Core Competency Theory (Prahalad & Hamel)

Prahalad and Hamel's Core Competency Theory argues companies should build advantage around distinctive internal capabilities and outsource the rest.

In a Chapter 11 bankruptcy, a 'DIP loan' refers to:

Answer: Debtor-in-Possession financing that funds operations during the reorganization

DIP (Debtor-in-Possession) financing gives bankrupt companies access to new capital during reorganization, typically with super-priority lien status.

What does 'leverage' mean in a corporate finance context?

Answer: The use of debt to amplify potential returns (and risks)

Financial leverage refers to the use of borrowed capital, which magnifies both gains and losses relative to equity invested.

A company's 'burn rate' refers to:

Answer: The monthly rate at which a company spends its cash reserves

Burn rate measures how quickly a company is depleting its cash reserves, critical for assessing how long it can survive without new revenue or financing.