CFI CBCA Account Monitoring and Warning
Signs Questions With All Correct Answers
Developing an Action Plan
Consider the following when developing an action plan to address the root problem: Correct
answer-Working Together
Is the client open to working together to resolve the problem?
Restructure the Loan
Is there an option to restructure the loan in a way that will help alleviate repayment pressures?
Strategies
Will the client accept strategies such as using a cash flow budget and reducing operating costs,
including a reduction in salary?
Account Monitoring and Warning Signs
Identify Early Warning Signs
Course Objectives Correct answer--Identify common warning signs that a company has financial
difficulties
-Apply quantitative models to predict if companies will run into financial difficulty
-Understand how to deal with problem accounts
Identifying Warning Signs
Session Objectives Correct answer--Identify common warning signs that a company has
financial difficulties
- Understand symptoms and causes of corporate decline
Annual Credit Review Process
An annual review is typically performed using the following components: Correct answer-1.
Financial Statement Review
• Comparative analysis
• Working capital analysis
• Cash flow analysis
• Financial covenant analysis
2. Security Review
• Account receivables
• Inventory
• Equipment
• Real estate
• Personal guarantees & covenants
3. Management Review
• Change in management structure
• Decision making abilities
• Budget & results monitoring
4. Business Review
• Opportunities
• Threat
, • Capacity
Identify Warning Signs
Root Causes and Impact Correct answer-Root Causes
• Low staff morale and poor working conditions
• Loss of a key customer
• Weak credit controls
Impact
• Increasing staff turnover
• Declining sales and profitability
• Increasing accounts receivable and bad debt
write-offs
The most common warning signs are deteriorating financial and non-financial indicators: Correct
answer-financial indicators:
-Declining profitability (look for changes in operating profits and profit margins)
-Decreasing sales volume (look for sales volumes after adjusting for inflation)
-Increased leverage / gearing (look for increases in debt funding)
-Decreased liquidity (look at changes in the current ratio or the quick ratio)
-Reduced / increased dividends (look for changes in dividend or other shareholding payments)
non-financial indicators:
-Delays in reporting (look for unusual delays in publishing financial statements)
-Poor management skills (does management deliver what it promises?)
-Management changes (look for unusual or rapid turnover of senior managers)
-Declining market share (look at changes in the market in which the company operates)
-Poor planning procedures (including a lack of strategic thinking)
Principle Causes of Decline Correct answer-Poor Management ; Inadequate Financial Control
-Adverse Commodity Prices
-Competition
-Big Projects
-Overtrading
-Financial Policy
-Changes in Market Demand
-Acquisitions
-Marketing failure
Leading Causes of Decline
In a study by Stuart Slatter of 40 declining listed companies, two causes occurred twice as frequently
as all other causes of decline. Correct answer-Poor management and Inadequate financial control
Leading Causes of Decline - Poor Management Correct answer-• Lack of management depth and
experience
• A dominant chief executive or a combined CEO & Chair
• An ineffective board of directors
• Management neglect of the core business
• Relationship deterioration with customer/supplier
Signs Questions With All Correct Answers
Developing an Action Plan
Consider the following when developing an action plan to address the root problem: Correct
answer-Working Together
Is the client open to working together to resolve the problem?
Restructure the Loan
Is there an option to restructure the loan in a way that will help alleviate repayment pressures?
Strategies
Will the client accept strategies such as using a cash flow budget and reducing operating costs,
including a reduction in salary?
Account Monitoring and Warning Signs
Identify Early Warning Signs
Course Objectives Correct answer--Identify common warning signs that a company has financial
difficulties
-Apply quantitative models to predict if companies will run into financial difficulty
-Understand how to deal with problem accounts
Identifying Warning Signs
Session Objectives Correct answer--Identify common warning signs that a company has
financial difficulties
- Understand symptoms and causes of corporate decline
Annual Credit Review Process
An annual review is typically performed using the following components: Correct answer-1.
Financial Statement Review
• Comparative analysis
• Working capital analysis
• Cash flow analysis
• Financial covenant analysis
2. Security Review
• Account receivables
• Inventory
• Equipment
• Real estate
• Personal guarantees & covenants
3. Management Review
• Change in management structure
• Decision making abilities
• Budget & results monitoring
4. Business Review
• Opportunities
• Threat
, • Capacity
Identify Warning Signs
Root Causes and Impact Correct answer-Root Causes
• Low staff morale and poor working conditions
• Loss of a key customer
• Weak credit controls
Impact
• Increasing staff turnover
• Declining sales and profitability
• Increasing accounts receivable and bad debt
write-offs
The most common warning signs are deteriorating financial and non-financial indicators: Correct
answer-financial indicators:
-Declining profitability (look for changes in operating profits and profit margins)
-Decreasing sales volume (look for sales volumes after adjusting for inflation)
-Increased leverage / gearing (look for increases in debt funding)
-Decreased liquidity (look at changes in the current ratio or the quick ratio)
-Reduced / increased dividends (look for changes in dividend or other shareholding payments)
non-financial indicators:
-Delays in reporting (look for unusual delays in publishing financial statements)
-Poor management skills (does management deliver what it promises?)
-Management changes (look for unusual or rapid turnover of senior managers)
-Declining market share (look at changes in the market in which the company operates)
-Poor planning procedures (including a lack of strategic thinking)
Principle Causes of Decline Correct answer-Poor Management ; Inadequate Financial Control
-Adverse Commodity Prices
-Competition
-Big Projects
-Overtrading
-Financial Policy
-Changes in Market Demand
-Acquisitions
-Marketing failure
Leading Causes of Decline
In a study by Stuart Slatter of 40 declining listed companies, two causes occurred twice as frequently
as all other causes of decline. Correct answer-Poor management and Inadequate financial control
Leading Causes of Decline - Poor Management Correct answer-• Lack of management depth and
experience
• A dominant chief executive or a combined CEO & Chair
• An ineffective board of directors
• Management neglect of the core business
• Relationship deterioration with customer/supplier
