TMA Introduction to Business 2

Question 1

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

Accepted Answer

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

Answer

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

Question 2

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

Accepted Answer

Cash flow statement

Answer

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

Question 3

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

Accepted Answer

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

Answer

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

Question 4

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

Accepted Answer

Management dysfunction or poor strategic decisions

Answer

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

Question 5

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

Accepted Answer

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

Answer

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

TMA - Turnaround Management Association Practice Test

TMA - Turnaround Management Association Practice Test

TMA Introduction to Business 2