Introduction to Business Flashcards

In a turnaround context, what does 'runway' refer to?

Answer: The number of months a company can operate before running out of cash

Runway is the number of months of cash remaining at the current burn rate, a critical metric in any turnaround.

Which financial statement best reveals a company's short-term liquidity crisis?

Answer: Cash flow statement

The cash flow statement shows actual cash inflows and outflows, directly revealing short-term liquidity problems.

A company's quick ratio is 0.6. What does this indicate?

Answer: The company may struggle to meet short-term obligations without selling inventory

A quick ratio below 1.0 suggests the company cannot cover current liabilities with its most liquid assets.

Which of the following is a PRIMARY driver of business distress according to turnaround professionals?

Answer: Management dysfunction or poor strategic decisions

TMA research consistently identifies management dysfunction and poor strategic decisions as the leading cause of business distress.

What is 'EBITDA' most commonly used for in turnaround analysis?

Answer: Measuring cash-generating ability before financing and non-cash charges

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) approximates operating cash flow and is widely used in distressed company valuation.

In business turnarounds, 'stakeholder management' primarily involves:

Answer: Communicating with and balancing the interests of all parties affected by the restructuring

Effective stakeholder management requires transparent communication with creditors, employees, customers, and suppliers throughout the turnaround process.

What is a 'going concern' opinion from an auditor?

Answer: A warning that the company may not survive the next 12 months

A going concern opinion signals the auditor's substantial doubt about the company's ability to continue operations for the next year.