QFC Cash Flow Management 3

Question 1

What is the primary difference between FCFF and FCFE?

Accepted Answer

FCFF is available to all capital providers while FCFE is available only to equity holders

Answer

FCFF represents cash available to both debt and equity holders; FCFE subtracts net borrowing and interest to isolate equity holders' share.

Question 2

A company's days sales outstanding (DSO) increases from 30 to 45 days. What is the likely cash flow impact?

Accepted Answer

Operating cash flow decreases as accounts receivable increases

Answer

Rising DSO means customers take longer to pay, increasing accounts receivable and reducing operating cash flow.

Question 3

Which scenario would result in positive operating cash flow despite a reported net loss?

Accepted Answer

Large non-cash depreciation charges exceed the net loss

Answer

High depreciation is added back to net income in the indirect method; if it exceeds the net loss, operating cash flow turns positive.

Question 4

What is the relationship between EBITDA and unlevered free cash flow?

Accepted Answer

UFCF = EBITDA - Taxes - CapEx - Change in Working Capital

Answer

Unlevered FCF starts with EBITDA, subtracts cash taxes (ignoring interest tax shield), CapEx, and working capital changes.

Question 5

A firm uses a 13-week rolling cash flow forecast. Which risk does this primarily help manage?

Accepted Answer

Short-term liquidity risk

Answer

A 13-week (quarterly) rolling forecast helps treasurers identify near-term cash shortfalls and manage day-to-day liquidity.

(QFC) Quantitative Finance Certification Practice Test