CIRA Cash Flow Management & Liquidity Analysis 2

Question 1

Which metric best measures a company's ability to meet short-term obligations without selling inventory?

Accepted Answer

Quick ratio

Answer

The quick ratio (cash + receivables divided by current liabilities) excludes inventory, providing a more conservative measure of immediate liquidity.

Question 2

A company's days sales outstanding (DSO) increased from 30 to 60 days during a distress period. What is the most likely cash flow implication?

Accepted Answer

Delayed cash collections reducing available liquidity

Answer

A doubling of DSO means customers are taking twice as long to pay, which delays cash collections and reduces the company's available liquidity.

Question 3

What is 'adequate protection' in the context of a secured creditor's cash collateral rights in Chapter 11?

Accepted Answer

Compensation or security provided to prevent diminution of a secured creditor's interest

Answer

Adequate protection is the relief provided to a secured creditor to compensate for any decrease in the value of its collateral interest while the debtor uses the property in Chapter 11.

Question 4

In a restructuring context, 'operational cash burn' is best defined as:

Accepted Answer

Cash consumed by day-to-day operations excluding restructuring costs

Answer

Operational cash burn represents the cash used by core business operations, excluding one-time restructuring costs, and indicates the baseline liquidity need of the business.

Question 5

Which of the following actions would MOST directly improve a distressed company's short-term liquidity?

Accepted Answer

Negotiating extended payment terms with key suppliers

Answer

Extending supplier payment terms defers cash outflows, directly improving the company's near-term cash position and working capital.

(CIRA) Certified Insolvency & Restructuring Advisor Practice Test

(CIRA) Certified Insolvency & Restructuring Advisor Practice Test

CIRA Cash Flow Management & Liquidity Analysis 2