CTP CTP Cash Flow Management & Liquidity Solutions 1 — Questions and Answers
Question 1: What is the primary purpose of a 13-week cash flow forecast in a turnaround situation?
- To project annual revenue
- To monitor near-term liquidity and identify cash shortfalls (Correct answer)
- To calculate EBITDA margins
- To prepare audited financial statements
Correct answer: To monitor near-term liquidity and identify cash shortfalls
A 13-week cash flow forecast provides a short-term view of liquidity to identify and address cash gaps before they become critical.
Question 2: Which term describes a court-approved arrangement permitting a debtor to use a secured lender's collateral cash during Chapter 11 proceedings?
- DIP financing
- Cash collateral order (Correct answer)
- Forbearance agreement
- Pre-packaged plan
Correct answer: Cash collateral order
A cash collateral order is a court-approved arrangement permitting a debtor to use a secured lender's cash collateral during Chapter 11 proceedings.
Question 3: What does 'burn rate' measure in a liquidity analysis?
- The rate at which inventory is consumed
- The pace at which a company is depleting its cash reserves (Correct answer)
- The speed of accounts receivable collection
- The rate of debt amortization
Correct answer: The pace at which a company is depleting its cash reserves
Burn rate measures how quickly a company is spending its available cash, which is critical for determining how long it can sustain operations.
Question 4: In a turnaround, accelerating accounts receivable collections is primarily aimed at:
- Improving EBITDA
- Reducing accounts payable balances
- Generating immediate cash inflows (Correct answer)
- Increasing the current ratio
Correct answer: Generating immediate cash inflows
Accelerating collections converts outstanding receivables into cash faster, directly improving liquidity in a distressed situation.
Question 5: What is 'stretching payables' in cash flow management?
- Negotiating lower purchase prices with suppliers
- Delaying payments to vendors beyond standard terms to conserve cash (Correct answer)
- Converting accounts payable to long-term debt
- Factoring invoices to improve cash flow
Correct answer: Delaying payments to vendors beyond standard terms to conserve cash
Stretching payables involves extending the time before paying vendors, preserving cash in the short term but potentially damaging supplier relationships.
Question 6: Which liquidity metric compares current assets to current liabilities to assess short-term solvency?
- Quick ratio
- Current ratio (Correct answer)
- Debt-to-equity ratio
- Interest coverage ratio
Correct answer: Current ratio
The current ratio (current assets ÷ current liabilities) measures a company's ability to pay short-term obligations with its short-term assets.
CTP CTP Cash Flow Management & Liquidity Solutions 1
What is the primary purpose of a 13-week cash flow forecast in a turnaround situation?