TRIP Financial Analysis & Planning 3

Question 1

A transportation company's loss ratio is 72% and its expense ratio is 31%. Its combined ratio is:

Accepted Answer

103%

Answer

The combined ratio equals the loss ratio plus the expense ratio: 72% + 31% = 103%.

Question 2

In transportation financial planning, 'working capital' is defined as:

Accepted Answer

Current assets minus current liabilities

Answer

Working capital equals current assets minus current liabilities and measures a company's short-term financial health and operational liquidity.

Question 3

Which risk financing technique transfers risk to a third party while allowing the insured to retain a portion of the loss through a deductible?

Accepted Answer

High-deductible insurance policy

Answer

High-deductible policies transfer catastrophic risk to the insurer while the insured self-funds losses up to the deductible amount.

Question 4

A fleet manager is evaluating whether to lease or purchase vehicles. Which financial concept determines the true cost of each option over time?

Accepted Answer

Net present value analysis

Answer

NPV analysis discounts all future cash flows for each option to their present value, enabling a true apples-to-apples financial comparison.

Question 5

Under GAAP accounting, transportation companies must recognize a loss reserve when a liability is:

Accepted Answer

Probable and the amount can be reasonably estimated

Answer

GAAP (ASC 450) requires loss accrual when a liability is probable of occurring and the amount can be reasonably estimated.

(TRIP) Transportation Risk and Insurance Professional Practice Test