Cash Forecasting and Liquidity Management Flashcards
7 cards from real CCM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Cash Forecasting and Liquidity Management flashcards as text
A company establishes a minimum liquidity buffer equal to 30 days of operating expenses. If monthly operating expenses are $3 million, what is the required liquidity buffer?
Answer: $3,000,000
30 days equals one month of expenses, so the liquidity buffer = $3,000,000 (one month of operating expenses).
Which type of credit facility provides the most reliable committed access to liquidity for a corporation during a market stress event?
Answer: Revolving credit facility
A revolving credit facility is a committed facility, meaning the bank is legally obligated to lend up to the agreed amount, providing reliable liquidity even during market stress.
When a firm pools subsidiary cash balances into a central account to optimize overall liquidity, this is called:
Answer: Cash concentration or pooling
Cash concentration (or pooling) aggregates subsidiary balances into a central account, allowing the company to manage net liquidity rather than individual entity balances.
A cash manager uses variance analysis to compare actual cash flows to forecasted cash flows. The primary purpose of this analysis is to:
Answer: Identify forecast errors and improve future forecasting accuracy
Variance analysis on cash forecasts identifies where projections deviated from actuals, enabling the treasurer to refine assumptions and improve future forecast quality.
Which of the following actions directly shortens a company's cash conversion cycle?
Answer: Negotiating longer payment terms with suppliers
Negotiating longer payment terms with suppliers increases DPO, which directly reduces the cash conversion cycle (CCC = DSO + DIO - DPO).
In a cash flow forecast, 'float' refers to:
Answer: The time lag between initiating a payment and the actual transfer of funds
Float is the period between when a payment is initiated (e.g., a check is written) and when the funds are actually debited or credited, creating a timing difference in available balances.
A firm's liquidity stress test reveals it could only sustain operations for 15 days without external funding. The recommended minimum threshold for most companies is generally:
Answer: 30-90 days
Most treasury best practices recommend maintaining liquidity sufficient to fund operations for 30 to 90 days without relying on external capital markets.