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

Increases in inventory represent cash spent to build stock, reducing operating cash flow under the indirect method.

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

The direct method lists actual cash received from customers and cash paid to suppliers, whereas the indirect method reconciles net income to operating cash flow.

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

Heavy financing inflows suggest the company cannot self-fund operations, raising concerns about long-term debt sustainability.

Question 4

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

Accepted Answer

Operating cash flow ratio

Answer

The operating cash flow ratio (Operating CFO / Current Liabilities) measures how well current liabilities can be covered by cash generated from operations.

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

Lenders evaluate project free cash flow after debt service to confirm sufficient residual cash remains following all principal and interest payments.

CCA - Certified Credit Analyst Practice Test

CCA - Certified Credit Analyst Practice Test

CCA Cash Flow Analysis 2