What is the Profit & Loss Statement (aka Income Statement)?
Lists all the income & expenses of a business for a certain period of time
Summarizes all assets & liabilities & shows the financial position of a business as of a specific date. The statement of the balance between the asset accounts & the total of liabilities & net worth (owner’s equity) accounts.
The dollars remaining after deducting all direct & indirect labor & indirect expenses from revenue, before any distributions are made or tax is paid.
Represents the net dollars remaining after deducting the invoiced consultant’s fees & expenses, & all reimbursable & non-reimbursable project-related expenses
What is the Balance Sheet?
Lists all the income & expenses of a business for a certain period of time (AKA Income Statement)
Which of the following are financial performance indicators of the Profit & Loss Statement?
Utilization Rate
Overhead Rate
Net Profit
Net Revenue per Employee
Profit to Earnings Ratio
Aged Accounts Receivable
Net Multiplier
Break-Even Rate
Net Operating Revenue
Which of the following are the 2 Primary Accounting Reports?
The Profit & Loss Statement
The Annual Budget
General Ledger Accouting
The Chart of Accounts
The Balance Sheet
The Profit Plan
What are the 2 essential components of a financial management system?
The Overhead Rate
What is the Difference between Accounting Reports & Financial Management Reports?
The Accounting Reports & their data are the responsibility & realm of a firm's accounting personnel & its outside tax consultant
The Financial Management Reports are the responsibility & realm of the firm leaders, even though others might develop & compile these reports (ie Time Sheets)
Accounting Reports focus on cash-flow management, accounts payable, & defining the firm's quarterly & annual tax liability, as seen in cash-basis reports
Financial Management Reports focus on reviewing & monitoring the key indicators from the financial data provided in the accrual-basis reports (P&L statements)
Which of the following are true of the Cash-Basis Report?
A type of Profit & Loss Statement / Income Statement that Indicates ONLY the income received & the amounts paid out for expenses to others within a specific accounting period
The sole report used to establish a firm's tax liability
Establishes the net profit for a firm & the calculation of its 7 relevant key financial performance indicators
Defines the available cash for the current month, much of which also includes income from months of previous invoices that were not paid until the current month
Which of the following are true of the Accrual-Basis Report?
It is a type of Profit & Loss Statement
Includes income from months of previous invoices that were not paid until the current month
Defines Net Profit
Includes earned fees of invoices that have NOT been sent to the client
Which of the following are true of the Modified Accrual-Basis Report / Method?
Defines the net profit (the profit after working expenses have been paid)
Shows income that has been literally received for a previous or current invoice & after expenses have actually been paid
Does NOT include earned fees of unsent invoices (It records only the invoiced amounts sent to the clients for the firm)
This report does not indicate any actual income received or payments made
Which of the following is true of the Net Multiplier?
Net Operating Revenue / Cost of Direct labor
Measures actual performance and results
Defines how much money a firm is earning for every dollar you spend on direct labor
Can be used for billing rates
What is the recommended range for the Net Multiplier?
2.75 to 3.25
1.25 to 1.4
2.5 to 3.0
1.5 to 2.0
Which of the Financial Indicators on the Profit & Loss / Income Statement reflects a firm's well being?
The comparison of which 2 rates determines if a firm is operating at a loss or a profit?
The Net Multiplier & The Break-Even Rate
The Overhead Rate & The Net Multiplier
The Current Ratio & The Overhead Rate
The Billing Rate & The Overhead Rate
Which of the Financial Indicators on the Profit & Loss / Income Statement measures the actual performance & results of a firm?
Which of the Financial Indicators on the profit & Loss / Income Statement determines how much money a firm is earning for every dollar spent on direct labor?
Utilization rate
Net Revenue per employee
Which of the following does NOT apply to the Net Multiplier?
Can be used for setting Billing Rates
Measures costs
Gauges a firm's well being
Measures performance
Which of the 7 P&L / Income Statement indicators reflects the balance between staff size & the available project work?
Overhead
Which of the following equations reflects the Net Multiplier?
= ( Net Revenue of the Firm NOR / Cost of Direct Labor )
= (Total Indirect Expenses / Total Direct Labor Costs)
= (Total Direct labor / Total Labor )
= Total Revenue - (Consultant's Fees & Expenses + Reimbursable & Non-Reimbursable Project Related Expenses)
What is the recommended range for Total Direct Labor to Net Operating Revenue?
28% or 32% or 1/3rd
45% to 50% 1/2
70% to - 75% 1/4th
15% to 20% 1/8th
What is the primary source of a firm's generated revenue & income (Apprx 2/3rd of total annual salaries)?
Project-Related Revenue
Direct Labor
Indirect Labor
Reimbursable Project Related Expenses
What is the single largest expense for any firm?
Annual Salaries
Non-Reimbursable Expenses
Operating Expenses
Risk Management
What is a firm's primary resource?
Labor
Reimbursable Expenses
Gross Profit
If the Net Multiplier is less than the Break-Even Rate, the firm is operating at a
Loss
Profit
In what unit is the Utilization Rate Measured?
As a Percentage of Hours
Monetary Rate
Percentage of Profit
Percentage of Salary
Which of the following equations reflects the Utilization Rate?
= (Net Operating Revenue / Cost of Direct Labor)
= (Total Direct Labor / Total Labor) x 100 (for percentage)
What Rate is a measure of a firm's overall efficiency & effectiveness?
Break - Even Rate
The Utilization Rate is a Direct labor Percentage of what?
Total Hours Worked
Which Indicator of the P&L / Income Statement is the most important?
Which of the following equations reflects the Overhead Rate?
= ( Net Operating Revenue / Cost of Direct Labor )
= ( Total Indirect Expenses / Total Direct Labor Costs )
= ( Total Direct Labor / Total Labor ) x 100
Which of the following is true regarding the Overhead Rate?
Establishes appropriate, profitable billing rates & fees for services to determine a firm's protifability
Measures Performance
Measures efficiency & effectiveness
What is the recommended range of the Overhead Rate?
Which best describes the following statement, "For every dollar spent in direct labor costs, there is an amount owed in indirect expenses"
Billing Rate
What comprises a Projection, Expectation, Projected Net Billing & Revenue?
Backlog Balance of Fees Remaining
Outstanding Project Proposals (Prospect & Suspect) & their projected fee values
Future Proposals - Potential New Prospects & Suspects determined by the Marketing Plan
What are the typical Financial Performance Goals to consider before the start of the new year?
Projected Net Billing & Revenue
Projected Consultant Fees (as percentage of total billing)
Project-Related Expenses
Staff Size & Salary Expense
Overhead expense & break even rates (as a percentage of direct labor)
Net Profit (as a percentage of net operating revenue)
Competitive Hourly Billing Rates for every member of the firm
Targeted Utilization Rates for every member of the firm
Which of the following correctly defines "Net Billing?"
Fees billed exclusive of expenses & consultants
A report that indicates current projects under contract that will carry over into the coming year & the balance of fees remaining to be billed on those projects in the coming year
Outstanding project proposals with a better than 50% chance of being awarded
Outstanding project proposals with a less than 50% chance of being awarded
Which of the following correctly defines "Backlog?"
fees billed exclusive of expenses & consultants
Which of the following correctly defines "Prospects?"
Which of the following correctly defines "Suspects?"
fees billed exclusive of expenses & consultants (fees billed to the client other than expenses or consultant fees)
What action should be taken prior to submitting a fee proposal in response to an RFP?
Send a comprehensive request for proposal (RFP) to each of the required project consultants
Add the consultant's proposed fee to the firm's calculated fee to determine the total fee & the actual percentage of the total fee allocated to the project consultants
Determine the backlog balance of fees remaining for current projects under contract
Determine Future Proposals, potential new prospects & suspects
What are the 2 categories of Project-Related Expenses
Indirect Expenses
Which of the following defines Reimbursable Expenses?
A form of project related expenses that are individually reimbursed
A form of project related expenses that are included in the total fee, as in a lump sum fee basis & not individually reimbursed
Which of the following defines Non-Reimbursable Expenses?
Which are measures to establish a more accurate Net Operating Revenue & Net Profit for a Prospective Project?
Identify & Include common project related non-reimbursable expenses in the fee-setting process
Identify & Include a unit cost for each expense in the fee-setting process
Identify & Include consultant fees
Identify & Include project related reimbursable expenses in the fee-setting process
Which of the following are causes of project workload being not sufficient enough to allow staff to charge their "normal" number of direct hours (based on their targeted utilization rates) & reducing the percentage of direct hours to NOR to below 28%?
There are insufficient hours being charged to project-related assignments due to a reduction in project workload caused by a client stop-work order
There are insufficient hours being charged to project-related assignments due to an economic slow-down affecting the entire industry
Hours in excess of those budgeted or allowed are being charged to project-related activities
A large volume of overtime hours are being charged to project-related activities
Which of the following are causes of the percentage of direct hours to NOR being over 32%?
Hours in excess of those budgeted or allowed are being charged to project-related activities. Potential negative impact is that the project's total fee is being used too quickly & profit is being consumed to cover these additional hours
A large volume of overtime hours are being charged to project-related activities. This would be added to the project fee if the client authorized & was paying for these overtime hours at regular or premium billing rates. If a firm doesn't pay employees overtime, the extra hours will be charged to the project with a zero-cost impact on the project budget or overhead
A business decision was made to spend the hours to "catch up" with the project schedule. If no compensation is made for these hours, it is billed at zero-cost. If compensation is being provided, it is a potential fee drain & profit loss
There are insufficient hours being charged to project-related assignments due to a reduction in project workload caused by client stop-work order
What are 2 components of Total Indirect Expenses?
General & Administrative Expenses (G&A)
At a 40 hour work week, there are total work hours in a year
There are weeks in a year
Which of the following defines a firm's Bottom Line?
The Net Profit
The total dollars earned after all salaries & expenses have been deducted (regardless of literal payment) from the net operating revenue but before any tax is paid or distributions are made
The Net Operating Revenue
The Gross Profit
What are 3 steps to managing a firm's finances?
Measuring the variances between the year-to-date actual financial activity & the year-to-date budget
Understanding why these variances have occured
Taking prompt, corrective action, as necessary
Which is the best way to measure & understand variances between the year-to-date actual financial activity & the year-to-date budget?
Regularly track, with the Accrual-Basis Profit-Loss Statement, the 7 key financial performance indicators which provide a snapshot of a firm's financial performance at a given point in time
Review the Balance Sheet
Review the Cash-Basis Profit-Loss Statement
Regularly track the annual budget & profit plan
Which of the following describes Utilization Rate?
Measures the overall efficiency & effective use of labor
Not a measure of productivity or profitability
Not a measure of "billable" time versus "non-billable" time because not all time charged to projects is billable
Measures the hours charged to projects and is expressed as a percentage %
Measures the revenue generated for every dollar spent on direct labor
Measures the total cost of operations for every dollar spent on direct labor
Measures a firm's effectiveness in generating a profit
Which of the following best describes the Utilization Rate?
= (Direct Labor Hours / Total Labor Hours) x 100
= (Total Indirect Expenses) / (Total Direct Labor Costs)
= (Overhead Rate + 1.00)
= (Net Operating Revenue) / (Total Direct Labor Costs)
= (Net Profit before distributions & tax) / (Net Operating Revenue)
= (Annual Net Operating Revenue) / (Total Number of Employees)
= (Average Annual Accounts Receivable) / (Net Operating Revenue / 365 Days)
Which of the following best describes the Overhead Rate?
Which of the following best describes the Break-Even Rate?
Which of the following best describes the Net Multiplier?
Which of the following best describes the Profit to Earnings Ratio?
Which of the following best describes the Net Revenue per Employee?
Which of the following best describes the Aged Accounts Receivable?
In what unit of measurement is the Utilization Rate Expressed?
= % of Hours
= $$ Cost of Indirect Operations per Every Dollar Spent on Direct Labor
= $$ Total Cost of Operations per Every Dollar Spent on Direct Labor
= $$ Revenue per Every Dollar Spent on Direct Labor
= % of NOR that is Profit
= $$ Revenue per Employee
= Calendar Days Before Payment is Received
In what unit of measurement is the Overhead Rate expressed?
In What Unit of Measurement is the Break-Even Rate Expressed?
= Calendar Days before Payment is Received
In What Unit of Measurement is the Net Multiplier Expressed?
In What Unit of Measurement is the Profit to Earnings Ratio Expressed?
In What Unit of Measurement is the Net Revenue Per Employee Expressed?
In What Unit of Measurement is Aged Accounts Receivable Expressed?
What is the Recommended Range for the Utilization Rate?
30-35% for an entire firm & 70-80% for professional-technical staff, including principals
40-45% for an entire firm & 85-95% for professional-technical staff, including principals
50-55% for an entire firm & 80-90% for professional-technical staff, including principals
60-65% for an entire firm & 75-85% for professional-technical staff, including principals
What is the Recommended Range for the Overhead Rate?
1.30 to 1.50
1.00 to 2.00
2.30 to 2.50
1.25 to 1.65
What is the Recommended Range for the Break-Even Rate?
2.00 to 2.50
1.50 to 2.00
What is the Recommended Range for the Net Multiplier?
3.0+ (Must be Greater than the Break-Even Rate)
3.0+ (Must be Less than the Break-Even Rate)
2.5+ (Must be Greater than the Break-Even Rate)
3.5+ (Must be Greater than the Break-Even Rate)
What is the Recommended Range for the Profit to Earnings Ratio?
20% or Greater of NOR (Equal to or Greater than the anticipated Net Profit in the Annual Profit Plan)
15% or Greater of NOR (Equal to or Less than the anticipated Net Profit in the Annual Profit Plan)
40% or Greater of NOR (Equal to or Greater than the anticipated Net Profit in the Annual Profit Plan)
15% or Greater of NOR (Equal to or Greater than the anticipated Net Profit in the Annual Profit Plan)
10% or Greater of NOR (Equal to or Greater than the anticipated Net Profit in the Annual Profit Plan)
What is the Recommended Range for The Net Revenue Per Employee Amount?
In Excess of $100,000.00 per Employee
Equal to $200,000.00 per Employee
In Excess of $80,000.00 per Employee
Equal to $150,000.00 per Employee
What is the Recommended Range for Aged Accounts Receivable?
60 - 90 days (Anything over 90 days means the firm is "lending" money to the client at zero cost)
45 - 90 days (Anything over 90 days means the firm is "lending" money to the client at zero cost)
45 - 60 days (Anything over 60 days means the firm is "lending" money to the client at zero cost)
60 - 80 days (Anything over 80 days means the firm is "lending" money to the client at zero cost)
Which of the following describes Overhead Rate?
Measures the cost of operations not directly attributed to projects (Total Indirect Expenses)
Measures the cost of indirect operations (all indirect expenses) for every dollar spent on direct labor
Measures the total cost of operations (all expenses) for every dollar spent on direct labor
Measures the cost of indirect operations for every dollar spent on indirect labor
Which of the following describes the Break-Even Rate?
Must be less than the Net-Multiplier for Net Profit to be realized
Which of the following describes the Net Multiplier?
Must be greater than the Break-Even Rate for a Net Profit to be realized
Measures Net Revenue per Employee
Serves as a basis for billing rates
Reflects a firm's well being
Measures the actual performance or results of a firm
Must be less than the Break-Even Rate for a Net Profit to be realized
Which of the following describes the Profit to Earnings Ratio?
Measures the firm's effectiveness in generating a net profit
A percentage of NOR that is Net Profit
Measures a firm's overall efficiency & effective use of labor
A percentage of hours
Which of the following describes Net Revenue Per Employee?
Measures the revenue earnings for each employee
Based on a targeted net profit, this indicator contributes to the establishing of the net operating revenue in the coming year's annual budget
Measures the net revenue per every dollar spent on direct labor
Percentage of NOR that is Profit
Which of the following describes Aged Accounts Receivable?
Measures the average time interval in calendar days between the date of outstanding invoices & the date payment is received
If payment has not been made after 90 days, the firm is "lending" money to the client at zero cost
Measures the average time interval in calendar weeks between the date of outstanding invoices & the date payment is received
If payment has not been made after 60 days, the firm is "lending" money to the client at zero cost
What are the (4) Key Financial Performance Indicators of the Balance Sheet?
Solvency (Current Ratio)
Liquidity (Quick Ratio)
Leverage (Debt-to-Equity)
Return on Equity (Net Worth)
Cash Flow Analysis
Summary of Assets & Liabilities
Which of the following describes the Current Ratio?
Solvency
Measures a firm's ability to pay current debt
Liquidity
Measures a firm's ability to convert assets to cash
Measures a firm's ability to manage debt effectively
Which of the following describes the Quick Ratio?
Which of the following describes Debt-to-Equity?
Leverage
Which of the following describes Return on Equity?
Measures the accumulated amount of money returned on a stockholder's investment for their risk & efforts
Measures the accumulated amount of money returned on Net Worth Accounts
Which of the four Financial Performance Indicators of the Balance Sheet measures a firm's ability to pay current debt?
Current Ratio
Quick Ratio
Debt-to-Equity
Return on Equity
Which of the four Financial Performance Indicators of the Balance Sheet measures a firm's ability to convert assets to cash?
Which of the four Financial Performance indicators measures a firm's ability to manage debt effectively?
What measures a firm's accumulated amount of money returned on a stockholder's investment for their risk & efforts?
Which of the following best describes Solvency?
= (Total Current Assets) / (Total Current Liabilities)
= (Cash + Accounts Receivable + Revenue Earned, but not billed) / (Total Current Liabilities)
= (Total Liabilities) / (Total Equity) x 100
= (Total Net Operating Revenue - Total Expenses) / (Total Equity) x 100
Which of the following best describes Liquidity?
Which of the following best describes Leverage?
Which of the following best describes Return on Equity?
You need to measure a firm's ability to pay current debt, what equation do you use?
You need to measure a firm's ability to convert assets to cash, what equation do you use?
= (Cash + Accounts Receivable + Revenue Earned but not billed) / (Total Current Liabilities)
You need to measure a firm's ability to manage debt effectively, what equation do you use?
You need to measure the accumulated amount of money returned on a stockholder's investment (aka owners equity or net worth) for their risk and efforts, what equation do you use?
In what unit is the Current Ratio expressed?
$
%
In what unit is Solvency expressed?
In what unit is the Quick Ratio expressed?
In what unit is Liquidity expressed?
In what unit is Debt-to-Equity expressed
In what unit is Leverage expressed?
In what unit is Return on Equity expressed?
% of investment
What is the target rate for the Current Ratio?
1.5 to 1.0
1.0 to 1.0
1.0 to 2.0
1.0 to 1.5
What is the target rate for Solvency?
What is the target rate for the Quick Ratio?
What is the target rate for Liquidity?
What is the target rate for Debt-to-Equity?
Less than 35%
Greater than 35%
Less than 50%
Greater than 50%
What is the target rate for Leverage?
What is the target rate for Return on Equity?
Equal to or greater than the anticipated net profit in the annual profit plan (20% or greater)
Equal to or less than the anticipated net profit in the annual profit plan (20% or greater)
Equal to or less than the anticipated net profit in the annual profit plan (35% or greater)
Equal to or greater than the anticipated net profit in the annual profit plan (35% or greater)
