CCA Cash Flow Analysis 2

Question 1

When analyzing a borrower's cash flow statement, an increase in inventory is treated as:

Accepted Answer

A use of cash in operating activities

Answer

A source of cash in operating activities

Answer

A source of cash in investing activities

Answer

A use of cash in financing activities

Question 2

The direct method of presenting operating cash flows differs from the indirect method primarily because the direct method:

Accepted Answer

Reports gross cash receipts and payments from operations

Answer

Starts with net income and adjusts for non-cash items

Answer

Only discloses investing and financing activities

Answer

Excludes working capital changes

Question 3

A company with stable profitability but rapidly increasing cash from financing activities warrants scrutiny because it may indicate:

Accepted Answer

Excessive reliance on external debt or equity to fund shortfalls

Answer

Strong organic growth funding operations

Answer

Conservative leverage management

Answer

Superior working capital efficiency

Question 4

Which ratio uses cash flow from operations as the numerator to assess short-term liquidity?

Accepted Answer

Operating cash flow ratio

Answer

Current ratio

Answer

Quick ratio

Answer

Cash conversion cycle

Question 5

In project finance credit analysis, which cash flow measure is typically used to evaluate a project's ability to repay debt?

Accepted Answer

Project free cash flow after debt service

Answer

Earnings before interest and taxes (EBIT)

Answer

Gross revenue projections

Answer

Book value of project assets

Question 6

A company's capital expenditure exceeds its depreciation consistently over several years. From a credit perspective, this most likely signals:

Accepted Answer

Growth investment requiring monitoring of free cash flow

Answer

Asset base shrinkage and declining capacity

Answer

Cosmetic earnings manipulation

Answer

Reduced future maintenance needs

Question 7

Which of the following adjustments is made to EBITDA to arrive at a more conservative 'adjusted cash flow' measure used in credit analysis?

Accepted Answer

Subtracting maintenance capital expenditures

Answer

Adding back stock-based compensation

Answer

Adding back one-time restructuring charges

Answer

Including unrealized foreign exchange gains