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

The cash conversion cycle equals DIO + DSO - DPO and measures how long it takes a company to convert investments in inventory and other resources into cash flows from sales.

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

Persistent underperformance in receipts signals a real shortfall that requires investigation and downward revision of projections to accurately reflect available liquidity.

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

Factoring allows a distressed company to sell receivables to a third party at a discount in exchange for immediate cash, accelerating liquidity even if it results in a cost.

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

Variance analysis compares actual results to the budget forecast and explains significant differences, which is critical for monitoring liquidity and maintaining creditor confidence.

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

DIP credit agreements typically require minimum cash balance maintenance and limits on how much actual spending can deviate from the approved budget to protect the lender's collateral position.

(CIRA) Certified Insolvency & Restructuring Advisor Practice Test

(CIRA) Certified Insolvency & Restructuring Advisor Practice Test

CIRA Cash Flow Management & Liquidity Analysis 3