WorksheetsPre Exam CICC Day 2
Total questions: 20
Worksheet time: 31mins
Which of the following is included - within the indirect method - to determine net cash flow from operating activities?
I. Cash impact of changes in short-term balance sheet accounts.
II. Net income from profit and loss statement.
III. Current loan from shareholder
IV. Proceeds of equipment purchase.
II and III only.
I, II and III only.
I and II only.
II, III and IV only.
In a UCA cash flow statement, how is total external financing calculated?
Change in Short Term Debt + Change in Long Term Debt + Change in Owner's Equity.
Tangible Net Worth - Total Liabilities.
Change in Short Term Debt + Change in Long Term Debt.
Change in Owner's Equity.
The cash flow coverage ratio is a narrower metric (i.e., it considers fewer elements) than the interest coverage ratio.
TRUE
FALSE
Which categories of cash inflows and outflows are represented the same way in both direct and indirect statements of cash flow?
I. Equity activities.
II. Financing activities.
III. Investing activities.
IV. Non-operating activities.
II and III only.
I and II only.
I, II and III only.
I only.
What are used in constructing a UCA cash flow statement for the most recent fiscal period?
I. The balance sheet from that period.
II. The balance sheet from the prior period.
III. The profit and loss statement from the prior period.
IV. The profit and loss statement from that period.
I, II, III and IV.
I, II and III only.
I, II and IV only.
I and III only.
What does it mean if cash-after-debt amortisation on a UCA cash flow statement is positive for a given operating period?
I. The business generated sufficient cash from normal operations to pay operating expenses, plus the interest expense and scheduled debt principal.
II. The business generated enough cash from normal operations to pay all new capital expenditures.
III. The business was unable to generate enough cash from normal operations to cover all typical operating expenses.
IV. The business is considered liquid for the period in question, because cash generated from normal operations allows it to meet its obligations.
I and II only.
I only.
II and III only.
I and IV only.
What is the UCA cash flow statement designed to indicate?
The amount of cash movement associated with every line item on the income (profit and loss) statement.
The amount of cash generated from sales.
The amount of cash needed to sustain the operating cycle of a company.
The amount of cash associated with the financing activities of a company.
What is a standstill/forbearance agreement?
It is an agreement by all stakeholders, including the borrower, that creditors will not enforce their rights until the restructured debt is fully paid.
It is an agreement by all stakeholders, including the borrower, that for a certain period creditors will not enforce their rights and the borrower will take certain actions.
It is an agreement by all stakeholders, including the borrower, requiring the borrower to take certain actions as a pre-condition for restructuring.
How could a covenant breach ultimately affect the work of a borrower's auditors?
Auditors would have difficulty signing off the business as a going concern.
Auditors would need to add this information in the notes to the financial statement.
If there is a covenant breach after the balance sheet, auditors might have to revise the Auditor’s Report.
What qualities should a business’s management have for a restructuring to be successful?
The management should have general understanding of the situation and should not be easily influenced.
The management should be focused, motivated, and going in the same direction as the lender.
The management should be mature, understanding, and independent.
What is one of the rules that forms the basis of any approach to a restructuring?
Do not exchange cash today solely for the client's promise of future action.
Provide equity but do not insist on any degree of ownership.
Helping a business in distress is a rule and not an exception for a financial institution.
How should the price be set for equity warrants issued to private equity sponsors in a restructuring, and why?
The price of the warrants should be set significantly higher than the value of the shares today, so that the warrant holders will benefit only if the performance of the borrower improves materially.
The price of the warrants should be set equal to the value of the shares today in the interest of fairness to all the stakeholders.
The price of the warrants should be set significantly higher than the value of the shares today, so that the private equity sponsors have sufficient incentive to cooperate in the restructuring process.
What is the key consideration in any restructuring activity?
To keep the client's business going to enable repayment of debts from business cash flows.
To sell securities as soon as possible
To make more money out of a distressed client to compensate for potential future losses.
What is one of the options that can be a part of long- term strategy of a credible action plan?
Debt reduction.
Increase in sales.
Higher trade creditors
What is a common characteristic of communication in a conflict situation?
Both parties generally behave in an adult, mature way. There is an open, equal exchange of information.
One party tends to become childlike while the other may take the role of a parent.
Both the parties tend to become childlike and often take unreasonable stands
For a problem loan, when is a decision to take no action appropriate?
When other creditors or lenders have already commenced litigation.
When the business has a cash concern and has begun working on ways to resolve it.
When other banks have already begun to recall their facilities.
While the bank will wish to monitor the borrower’s cash position, why should it not make the actual decisions about how cash is spent?
So that the bank does not get involved in lender liability issues.
Because it may provide an excuse to the management to abdicate their responsibility.
To avoid temptation for dishonest behaviour by the bank staff concerned
How is a reduction in facilities best carried out?
Reduce funded lines and increase non-funded lines to the same extent.
Cancel undrawn lines of credit and uncommitted facilities.
Liquidate security.
While conducting a basic credit analysis of a client's business, you observe some obvious indicators that changes in the industry will affect the company within one year. However, the management does not seem to have acted to address these issues. What is the best question to ask in this scenario?
Does management understand what is happening, or are they in denial?
What is the industry's current and projected health?
Is the company's capital structure viable?
In a “cash concern” situation, you may decide to take no action, but it is critical to monitor the borrower's status. What is one of the ways of monitoring in this situation?
Monitor administrative expenses.
Set qualitative or quantitative triggers.
Observe cash flows in the loan account
