CIRA Cash Flow Management & Liquidity Analysis 3

Question 1

Which of the following best describes the 'cash conversion cycle' (CCC)?

Accepted Answer

Days inventory outstanding + days sales outstanding - days payable outstanding

Answer

Days payable outstanding - days sales outstanding + days inventory outstanding

Answer

Total receivables divided by annual revenue

Answer

Operating cash flow divided by net income

Question 2

A restructuring advisor notices that a client's weekly cash receipts are consistently 20% below the 13-week forecast. What is the most appropriate immediate action?

Accepted Answer

Investigate collection issues and revise liquidity projections downward

Answer

Revise the forecast upward to match actuals

Answer

Increase disbursements to stimulate business activity

Answer

File for Chapter 7 liquidation immediately

Question 3

In a distressed situation, 'factoring' receivables primarily helps a company by:

Accepted Answer

Converting future receivables into immediate cash at a discount

Answer

Reducing outstanding accounts payable balances

Answer

Eliminating the need for DIP financing

Answer

Improving the company's credit rating

Question 4

Which of the following is a primary purpose of a 'variance analysis' in a 13-week cash flow report?

Accepted Answer

To compare actual cash flows against forecast and explain material deviations

Answer

To determine the company's enterprise value

Answer

To calculate the optimal DIP interest rate

Answer

To project long-term free cash flow for valuation purposes

Question 5

A DIP lender typically requires which of the following as a key covenant in a DIP credit agreement?

Accepted Answer

Minimum cash balance and maximum variance from approved budget

Answer

Minimum EBITDA maintenance covenant

Answer

Prohibition on any asset sales without prior court approval

Answer

Mandatory equity raise within 30 days

Question 6

What does 'liquidity risk' mean in the context of insolvency analysis?

Accepted Answer

The risk that a company cannot meet its financial obligations as they come due

Answer

The risk that asset values decline below book value

Answer

The risk that interest rates rise, increasing debt service costs

Answer

The risk that equity holders lose their entire investment

Question 7

When a restructuring advisor 'stress tests' a 13-week cash flow forecast, what is the primary objective?

Accepted Answer

To assess whether the company can survive under adverse scenarios with reduced receipts or accelerated disbursements

Answer

To identify tax optimization opportunities

Answer

To calculate the liquidation value of the company's assets

Answer

To determine the optimal capital structure post-reorganization