CCA Cash Flow Analysis 3

Question 1

The cash conversion cycle (CCC) measures:

Accepted Answer

Days it takes to convert investments in inventory and receivables into cash

Answer

Time to convert fixed assets into revenue

Answer

Period between loan origination and first payment

Answer

Number of days to prepare financial statements

Question 2

A lengthening cash conversion cycle over multiple periods would most likely concern a credit analyst because it suggests:

Accepted Answer

Increasing working capital strain and potential cash flow pressure

Answer

Improving liquidity and faster collections

Answer

Reduced leverage and stronger debt capacity

Answer

Accelerating inventory turnover

Question 3

When assessing a seasonal business, a credit analyst should primarily evaluate cash flow on a:

Accepted Answer

Trailing twelve-month and seasonal peak/trough basis

Answer

Annualized basis only, ignoring seasonal peaks

Answer

Single-quarter snapshot at loan origination

Answer

Pro forma basis projecting five years ahead

Question 4

Under the Uniform Credit Analysis (UCA) cash flow method, 'cash after debt amortization' is considered the most meaningful indicator because it:

Accepted Answer

Shows cash remaining after all operating needs and scheduled debt payments are met

Answer

Equals net income adjusted for tax

Answer

Excludes working capital changes for simplicity

Answer

Represents earnings available to equity holders only

Question 5

Which of the following would be considered a 'quality of earnings' concern when reviewing a borrower's cash flows?

Accepted Answer

Operating cash flow persistently lagging reported net income

Answer

Depreciation consistently aligned with capital expenditure

Answer

Stable accounts receivable days outstanding

Answer

Consistent gross margin over multiple years

Question 6

A global cash flow analysis in commercial lending combines the business's cash flow with the guarantor's personal cash flow primarily to:

Accepted Answer

Assess the total repayment capacity when business cash flow alone may be insufficient

Answer

Simplify underwriting by using one combined income figure

Answer

Replace the need for collateral analysis

Answer

Calculate the business's standalone DSCR more accurately

Question 7

In a leveraged buyout (LBO) credit review, the primary concern regarding target company cash flows is whether:

Accepted Answer

Post-acquisition free cash flow is sufficient to service the significantly increased debt load

Answer

The company can maintain its current dividend payout ratio

Answer

Gross revenue exceeds industry average benchmarks

Answer

The target has a positive investing cash flow trend