CPFM Treasury Management and Cash Flow Forecasting 1 — Questions and Answers
Question 1: Which primary function of treasury management ensures a company can meet its short-term obligations?
- Liquidity management (Correct answer)
- Equity issuance
- Depreciation scheduling
- Tax deferral
Correct answer: Liquidity management
Liquidity management ensures sufficient cash is available to meet short-term obligations without holding excess idle funds.
Question 2: A company's 13-week cash flow forecast is BEST used for which purpose?
- Long-term capital budgeting
- Short-term liquidity planning (Correct answer)
- Equity valuation
- Depreciation estimation
Correct answer: Short-term liquidity planning
A 13-week rolling cash flow forecast is the standard tool for short-term liquidity planning and identifying near-term cash gaps.
Question 3: Which instrument is MOST commonly used by treasury departments to invest short-term excess cash?
- Common stock
- 30-year Treasury bonds
- Money market instruments (Correct answer)
- Real estate investment trusts
Correct answer: Money market instruments
Money market instruments such as T-bills and commercial paper are preferred for excess cash due to their high liquidity and low risk.
Question 4: The difference between a company's cash inflows and outflows in a given period is called:
- Net present value
- Net cash flow (Correct answer)
- Operating leverage
- Current ratio
Correct answer: Net cash flow
Net cash flow is the difference between total cash inflows and total cash outflows during a specific period.
Question 5: A centralized treasury structure offers which primary advantage over a decentralized one?
- Greater autonomy for subsidiaries
- Netting of intercompany cash flows (Correct answer)
- Higher foreign exchange exposure
- Reduced oversight requirements
Correct answer: Netting of intercompany cash flows
Centralization allows netting of intercompany cash flows, reducing external borrowing costs and foreign exchange transaction volumes.
Question 6: Which metric measures how quickly a company converts its investments in inventory and accounts receivable into cash?
- Return on equity
- Cash conversion cycle (Correct answer)
- Debt-to-equity ratio
- Price-earnings ratio
Correct answer: Cash conversion cycle
The cash conversion cycle (CCC) measures the time between investing cash in operations and collecting cash from customers.
CPFM Treasury Management and Cash Flow Forecasting 1
Which primary function of treasury management ensures a company can meet its short-term obligations?