TMA Introduction to Business 3 — Questions and Answers
Question 1: Which type of business entity provides its owners with limited personal liability while allowing pass-through taxation?
- Sole proprietorship
- General partnership
- Limited Liability Company (LLC) (Correct answer)
- C-corporation
Correct answer: Limited Liability Company (LLC)
An LLC combines liability protection of a corporation with the pass-through tax treatment of a partnership.
Question 2: In turnaround management, a '13-week cash flow forecast' is used to:
- Project annual revenue growth
- Monitor near-term liquidity and manage cash on a weekly basis (Correct answer)
- Calculate long-term capital expenditure needs
- Determine employee bonus structures
Correct answer: Monitor near-term liquidity and manage cash on a weekly basis
The 13-week cash flow forecast is a standard turnaround tool that provides granular visibility into weekly cash inflows and outflows.
Question 3: What does 'working capital' measure?
- Total assets minus total liabilities
- Current assets minus current liabilities (Correct answer)
- Revenue minus operating expenses
- Equity minus long-term debt
Correct answer: Current assets minus current liabilities
Working capital (current assets minus current liabilities) measures a company's short-term operational liquidity.
Question 4: A company operating in a 'mature' industry phase is most likely to face:
- Rapid revenue growth and high innovation
- Intense competition, margin compression, and slower growth (Correct answer)
- Unlimited expansion opportunities
- Minimal need for restructuring
Correct answer: Intense competition, margin compression, and slower growth
Mature industries typically exhibit slower growth, fierce competition, and shrinking margins, increasing vulnerability to distress.
Question 5: Which of the following best describes 'operational restructuring' in a turnaround?
- Refinancing existing debt at lower interest rates
- Reducing costs and improving efficiency in core business operations (Correct answer)
- Selling the company to a new owner
- Filing for bankruptcy protection
Correct answer: Reducing costs and improving efficiency in core business operations
Operational restructuring focuses on improving the underlying business through cost cuts, process improvements, and performance optimization.
Question 6: What is the primary purpose of a 'SWOT analysis' in business strategy?
- To calculate financial ratios
- To assess internal strengths and weaknesses alongside external opportunities and threats (Correct answer)
- To create an organizational chart
- To determine optimal pricing strategy
Correct answer: To assess internal strengths and weaknesses alongside external opportunities and threats
SWOT analysis systematically evaluates a company's internal capabilities and external environment to inform strategic decisions.
Question 7: In the context of business distress, 'covenant violation' refers to:
- A breach of employment contracts
- A company failing to meet conditions set in its loan agreements (Correct answer)
- A violation of environmental regulations
- A breach of supplier agreements
Correct answer: A company failing to meet conditions set in its loan agreements
Loan covenants are performance conditions (e.g., minimum EBITDA, maximum leverage) that when violated give lenders the right to accelerate repayment.
TMA Introduction to Business 3
Which type of business entity provides its owners with limited personal liability while allowing pass-through taxation?