TMA Cash Flow Management 2

Question 1

What is 'Days Sales Outstanding (DSO)' and why is it important in a turnaround?

Accepted Answer

The average number of days it takes to collect payment after a sale; a high DSO strains liquidity

Answer

The number of days inventory sits before being sold; it measures operational efficiency

Answer

The number of days between ordering and receiving inventory

Answer

The average days between interest payment dates on outstanding debt

Question 2

What is 'factoring' and how is it used as a cash management tool in turnaround situations?

Accepted Answer

Selling accounts receivable to a third party at a discount to receive immediate cash

Answer

Refinancing fixed assets by selling them and leasing them back

Answer

Issuing new shares at a discount to attract distressed debt investors

Answer

Converting vendor payables into long-term notes to extend payment terms

Question 3

In a turnaround, 'working capital optimization' primarily focuses on which of the following?

Accepted Answer

Reducing the cash conversion cycle by managing receivables, inventory, and payables

Answer

Increasing capital expenditures to improve long-term asset efficiency

Answer

Hiring additional staff to process transactions more quickly

Answer

Expanding credit lines to fund day-to-day operations

Question 4

What is a 'cash dominion' provision in an asset-based lending agreement?

Accepted Answer

A requirement that all customer payments flow through a lender-controlled account and are applied to reduce the revolving balance

Answer

A lender's right to seize all company assets if a covenant is breached

Answer

The borrower's right to draw funds at will from the revolver without lender approval

Answer

A minimum cash balance requirement maintained in a segregated reserve account

Question 5

Which of the following is an example of a 'quick win' cash generation strategy commonly employed at the start of a turnaround?

Accepted Answer

Collecting overdue receivables and suspending non-essential capital expenditures

Answer

Launching a major new product line to increase revenue

Answer

Divesting a core business unit to raise capital

Answer

Refinancing all long-term debt into equity

Question 6

What does EBITDA stand for, and why is it commonly used as a proxy for cash flow in distressed company analysis?

Accepted Answer

Earnings Before Interest, Taxes, Depreciation, and Amortization; it approximates operating cash generation before non-cash charges and financing costs

Answer

Estimated Base Income Tax Deduction Assessment; it measures tax efficiency

Answer

Earnings Before Investment, Trading, Debt, and Acquisitions; it measures free cash flow

Answer

Enterprise-Based Income Tax and Debt Assessment; it calculates total debt service capacity

Question 7

In a turnaround, what is the purpose of a 'vendor payment stretch' strategy?

Accepted Answer

To deliberately delay accounts payable payments beyond normal terms to preserve cash

Answer

To accelerate payments to critical vendors to secure favorable pricing

Answer

To convert vendor payables into equity stakes

Answer

To pay vendors in installments using newly issued company debt