RM - Tutorial 4

If a company has an Altman Z-score below 1.8, what does it indicate?

• The company is in the safe zone

• The company is at high risk of bankruptcy

• The company is performing exceptionally well

• The company is undervalued in the stock market

What is the market value of question 1? (include comma separator for thousand in answer)

Financial risk is particularly high for companies that:

• Have no debt

• Use debt financing

• Only operate in local markets

• Avoid investment in bonds

Which of the following best describes credit risk?

• The risk that a borrower will not be able to repay borrowed money

• The risk of losing money due to fluctuations in interest rates

• The risk of a business earning excessive revenue

• The risk of investing in a government-backed security

Which of the following is NOT a financial risk management method?

• Strengthening internal controls

• Ignoring financial risks to save time

• Preparing a cash budget

• Credit insurance and Monitoring interest rates

How does preparing a cash budget help manage financial risk?

• By reducing the company’s total expenses

• By helping organizations anticipate cash shortages and surpluses

• By ensuring that companies always have excess funds

• By eliminating the need for financial planning

Which of the following is a key advantage of implementing strong internal controls?

• It increases the complexity of financial reporting

• It enhances transparency and deters fraudulent activities

• It reduces the number of financial audits required

• It allows companies to avoid compliance with accounting standards

Which of the qualitative factor best describe the below example:

“Lehman Brothers’ heavy investment in subprime mortgages led to massive financial losses. As the housing market collapsed, investors lost confidence, the firm faced a liquidity crisis, and it ultimately declared bankruptcy.”

• Poor Financial Health

• Loose Internal Controls and Risk Management

• Too high Executive Compensation Practices

• Decline in market position, market share, competitive advantage and ability to differentiate its products or services from competitors

Which of the qualitative factor best describe the below example:

“WeWork’s CEO Adam Neumann stepped down amid concerns over financial mismanagement and excessive spending. The company also changed CFOs and other key executives multiple times. These governance failures contributed to WeWork’s failed IPO and financial struggles.”

• Changes in CEO, auditor or top management too often

• Too high Executive Compensation Practices

• Loose Internal Controls and Risk Management

• Poor Financial Health

Which of the qualitative factor best describe the below example:

“Enron executives received large bonuses and stock options while the company engaged in fraudulent accounting practices. When the fraud was exposed, Enron collapsed, leading to one of the biggest corporate scandals in U.S. history.”

• Changes in CEO, auditor or top management too often

• Too high Executive Compensation Practices

• Loose Internal Controls and Risk Management

• Decline in market position, market share, competitive advantage and ability to differentiate its products or services from competitors