Financial Restructuring Flashcards

What is a '13-week cash flow forecast' used for in turnaround management?

Answer: Monitoring near-term liquidity and cash runway during a crisis

The 13-week cash flow forecast is the turnaround practitioner's primary tool for tracking short-term liquidity and ensuring the company can meet imminent obligations.

What is the difference between a 'going concern' and a 'liquidation' valuation?

Answer: Going concern assumes continued operations; liquidation assumes immediate asset sale

A going concern valuation assumes the business will continue operating and generating cash flows, while a liquidation valuation estimates proceeds from selling assets immediately.

Which of the following is a key indicator that a company may be in financial distress?

Answer: Consistent covenant breaches and negative free cash flow

Recurring covenant breaches combined with negative free cash flow are strong warning signs of financial distress requiring turnaround intervention.

What role does an independent business review (IBR) play in restructuring?

Answer: It provides an objective assessment of a company's financial position and viability for creditors

An IBR is an independent assessment commissioned by lenders to evaluate the distressed company's financial health, business viability, and restructuring options.

What is a 'cram-down' in Chapter 11 bankruptcy?

Answer: Confirming a reorganization plan over the objection of dissenting creditor classes

A cram-down allows a bankruptcy court to confirm a reorganization plan even if one or more classes of creditors vote against it, provided the plan meets certain legal requirements.

What is the significance of EBITDA in distressed company analysis?

Answer: It approximates operating cash flow used to assess debt repayment capacity

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) approximates operating cash generation and is widely used to evaluate a distressed company's ability to service debt.