TMA Cash Flow Management

Question 1

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

Accepted Answer

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

Answer

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.

Question 2

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

Accepted Answer

Asset-based lending (ABL)

Answer

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.

Question 3

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

Accepted Answer

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

Answer

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.

Question 4

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

Accepted Answer

Direct method forecasting

Answer

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.

Question 5

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

Accepted Answer

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

Answer

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.

TMA - Turnaround Management Association Practice Test

TMA - Turnaround Management Association Practice Test

TMA Cash Flow Management