CTA Due Diligence & Forensic Analysis in Turnaround 2

Question 1

What is 'normalized EBITDA' and why is it important in turnaround due diligence?

Accepted Answer

EBITDA adjusted for non-recurring and one-time items to reflect underlying business performance

Answer

EBITDA adjusted for inflation to reflect current purchasing power in real terms

Answer

The simple average EBITDA calculated over the prior five fiscal years

Answer

EBITDA calculated before any management fees or related-party charges are deducted

Question 2

In forensic analysis, what is 'kiting' in the context of a distressed company's cash management?

Accepted Answer

A fraudulent scheme using float between bank accounts to artificially inflate cash balances

Answer

A strategy to reduce outstanding debt through systematic asset dispositions

Answer

A legitimate cash management technique to optimize daily account balances

Answer

A method to calculate the effective interest rate on revolving credit facilities

Question 3

Which analytical technique is most useful for detecting fictitious or manipulated revenues in a distressed company?

Accepted Answer

Benford's Law analysis of the distribution of leading digits in financial data

Answer

Discounted cash flow analysis using management projections

Answer

Net present value calculations applied to revenue streams

Answer

SWOT analysis of the company's competitive position

Question 4

What is a 'preference payment' in the context of bankruptcy forensic analysis?

Accepted Answer

A payment made to a creditor within 90 days before bankruptcy that may be clawed back

Answer

A payment made to preferred shareholders prioritized over common stockholders

Answer

A distribution made during bankruptcy proceedings to secured creditors in priority order

Answer

An interest payment contractually granted seniority over other creditor payments

Question 5

When reviewing a distressed company's inventory during forensic analysis, what should the analyst be most alert to?

Accepted Answer

Overstated inventory values, obsolete items, and discrepancies with physical counts

Answer

The number of different SKUs maintained across the entire product line

Answer

The geographic distribution of warehouse and inventory storage locations

Answer

Normal seasonal fluctuations in raw material and finished goods inventory levels

Question 6

What does 'substantive consolidation' mean in the context of complex bankruptcy proceedings?

Accepted Answer

Merging the assets and liabilities of related entities and treating them as a single debtor

Answer

Consolidating multiple divisions of a company into a single streamlined operating entity

Answer

The process of combining financial statements of subsidiaries for audit reporting purposes

Answer

Reducing the number of creditor classes to simplify a plan of reorganization

Question 7

In due diligence for a leveraged buyout gone wrong, what is most important to analyze regarding the debt structure?

Accepted Answer

The terms, covenants, maturity schedule, and cross-default provisions of all debt instruments

Answer

The creditworthiness and capital adequacy of the original lenders at the time of the LBO

Answer

The personal financial statements of the selling shareholders at the time of the transaction

Answer

The original investment thesis and return expectations of the private equity sponsor