CFM Cash Flow Management 2 — Questions and Answers
Question 1: What is the primary purpose of a 13-week cash flow forecast?
- To estimate annual capital expenditure budgets
- To provide short-term liquidity visibility for near-term cash management decisions (Correct answer)
- To replace the annual budget
- To satisfy SEC reporting requirements
Correct answer: To provide short-term liquidity visibility for near-term cash management decisions
The 13-week cash flow forecast is a rolling short-term tool used to monitor and manage near-term liquidity, especially important during financial stress.
Question 2: Which technique involves pooling cash balances from multiple bank accounts into a single master account?
- Netting
- Cash pooling (notional or physical) (Correct answer)
- Factoring
- Zero-balance accounting
Correct answer: Cash pooling (notional or physical)
Cash pooling concentrates balances from subsidiary accounts into a master account to maximize interest earnings and minimize borrowing costs.
Question 3: What is the difference between a physical cash pool and a notional cash pool?
- Physical pools involve actual fund transfers; notional pools offset balances mathematically without moving funds (Correct answer)
- Notional pools transfer funds daily; physical pools do not move money
- Physical pools are only used domestically; notional pools are international
- There is no operational difference
Correct answer: Physical pools involve actual fund transfers; notional pools offset balances mathematically without moving funds
In a physical pool, funds are swept into a master account; in a notional pool, balances are offset on paper without actual transfers, reducing bank fees.
Question 4: Accounts receivable factoring involves:
- Selling receivables to a third party at a discount for immediate cash (Correct answer)
- Negotiating extended payment terms with customers
- Converting receivables into long-term debt
- Pledging inventory as collateral for a line of credit
Correct answer: Selling receivables to a third party at a discount for immediate cash
Factoring allows a company to sell its receivables to a factor (third party) at a discount, receiving immediate cash rather than waiting for customer payments.
Question 5: What is a lockbox system used for in cash management?
- Securing petty cash at branch locations
- Accelerating the collection of customer payments by directing remittances to a bank-operated PO box (Correct answer)
- Delaying disbursements to improve float
- Storing bearer bonds and negotiable instruments
Correct answer: Accelerating the collection of customer payments by directing remittances to a bank-operated PO box
A lockbox system routes customer payments directly to a bank-operated collection center, accelerating deposit and reducing float on incoming receipts.
Question 6: Which metric measures a company's ability to cover short-term obligations using its most liquid assets?
- Debt-to-equity ratio
- Quick ratio (acid-test ratio) (Correct answer)
- Return on assets
- Gross margin
Correct answer: Quick ratio (acid-test ratio)
The quick ratio (cash + marketable securities + receivables ÷ current liabilities) measures liquidity using only the most liquid assets, excluding inventory.
CFM Cash Flow Management 2
What is the primary purpose of a 13-week cash flow forecast?