Pre Exam CICC Day 10

Why is an increase in inventory turnover ratio considered an early warning sign?

• Increase in inventory turnover ratio indicates liquidity surplus that is prone to be misused.

• Increase in inventory turnover ratio implies that the sales are declining.

• Increase in inventory turnover ratio will cause liquidity issues due to decrease in cash flow.

What is an early warning sign related to management?

• High compensation.

• Loss of reputation.

• Ordinary lifestyle.

What is one of the regulatory consequences for a lender with a large portfolio of problem loans?

• High legal costs.

• Higher funding costs.

• Change of management control.

Which of these events would be of concern to you?

• The business has changed to a more reputable auditor firm as the previous auditor firm was always late in its submission.

• Rapid rise in a business’s share price.

• An auditor qualifies the business’s audited accounts.

At which stage should a company be put on a watch list?

• Cash crisis stage.

• Cash concern stage.

• Cash crunch stage.

Which action might suggest that the owners of your family-owned client are withdrawing corporate funds for personal purposes?

• Redemption of debentures held by shareholders.

• Purchase of personal assets in the name of the business.

• Dividends paid to shareholders.

What can an unusually large cash transaction indicate about a client's business and operations?

• It can indicate that a client with a restricted cash flow having a problem prioritising payments.

• It can indicate that the business is raising funds from a third party.

• It can indicate the existence of payment plans between the borrower and its creditors.

Which early warning sign indicates a fundamental issue related to business and operations?

• Loss of major client or contract.

• High seasonality or cyclicality.

• Negative rumours.

Where would you find warning signs of a client's decreasing or negative profits or cash flows?

• The business's management reports.

• The business's accounting policies.

• The business's financial statements.

At which stage of financial distress should a Relationship Manager start to discuss how to improve the situation with the business’s management and begin to monitor its progress?

• Cash concern stage.

• Cash crunch stage.

• Cash crisis stage.