Cash Flow Management Flashcards

What is the primary purpose of a 13-week cash flow forecast in a turnaround situation?

Answer: To provide a near-term, rolling view of liquidity and cash needs

A 13-week cash flow forecast gives turnaround professionals a rolling, week-by-week view of cash inflows and outflows to manage immediate liquidity needs and communicate with stakeholders.

Which type of lending arrangement is most commonly used to provide liquidity to distressed companies based on the value of their receivables and inventory?

Answer: Asset-based lending (ABL)

Asset-based lending (ABL) provides a revolving credit facility secured by a borrowing base calculated from eligible receivables and inventory, making it well-suited for distressed borrowers.

What does 'cash burn rate' measure in a distressed company context?

Answer: The net amount of cash the company consumes per period when operating at a loss

Cash burn rate measures how quickly a company is using up its available cash reserves when expenses exceed revenue, which is critical for determining how long a distressed company can survive without intervention.

In a turnaround, which forecasting method builds cash flow projections from individual receipts and disbursements rather than from income statement projections?

Answer: Direct method forecasting

The direct method builds cash flow projections from actual expected cash receipts and payments, providing greater precision and reliability for short-term liquidity management in turnaround situations.

What is a 'borrowing base' in the context of asset-based lending?

Answer: The formula-driven calculation of eligible collateral that determines the maximum available credit

A borrowing base is the formula-driven calculation—typically a percentage of eligible receivables plus eligible inventory—that determines the maximum amount a borrower can draw under an ABL facility.

What does 'DIP financing' stand for and why is it critical in a Chapter 11 restructuring?

Answer: Debtor-in-Possession financing; it provides liquidity to operate the business during the bankruptcy process

Debtor-in-Possession (DIP) financing provides a bankrupt company with the cash needed to fund operations during Chapter 11, with lenders receiving super-priority status over pre-petition creditors.

Which of the following actions is typically prioritized first when a turnaround advisor identifies a severe cash crisis?

Answer: Implementing a cash conservation plan and identifying immediate liquidity levers

Turnaround advisors first implement a cash conservation plan—halting discretionary spending, accelerating collections, and stretching payables—to stabilize liquidity before pursuing longer-term solutions.