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Sample TMA CTP Practice Questions
Try these sample questions to test your TMA CTP exam readiness. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.
1A distressed company reports current assets of $4,000,000 and current liabilities of $2,500,000. What is its current ratio?
A.6.50
B.0.63
C.1.60
D.2.50
Explanation: The current ratio equals current assets divided by current liabilities: $4,000,000 / $2,500,000 = 1.60. A ratio above 1.0 indicates current assets exceed current liabilities. In turnaround analysis the current ratio is a baseline liquidity screen.
2The quick (acid-test) ratio differs from the current ratio primarily because it excludes which current asset?
A.Inventory
B.Cash
C.Accounts receivable
D.Marketable securities
Explanation: The quick ratio removes inventory (and often prepaid expenses) from current assets because inventory is the least liquid current asset and may not convert to cash quickly in a distressed firm. It provides a more conservative liquidity measure than the current ratio.
3In the original Altman Z-score model for public manufacturers, a Z-score below which threshold places a firm in the 'distress' zone with high bankruptcy probability?
A.2.99
B.1.81
C.3.50
D.0.50
Explanation: In Altman's original model, a Z-score below 1.81 indicates the distress zone with high bankruptcy probability, scores above 2.99 indicate the safe zone, and scores between are the 'gray' zone. Turnaround professionals use the Z-score as an early-warning screen for financial distress.
4A turnaround manager prepares a rolling forecast that projects weekly cash receipts and disbursements to identify near-term liquidity crunches. This tool is best known as a:
A.Capital budgeting model
B.Pro forma balance sheet
C.Statement of changes in equity
D.13-week cash flow forecast
Explanation: The 13-week cash flow forecast (covering roughly one quarter) is the central liquidity-management tool in turnarounds, projecting weekly receipts and disbursements to pinpoint when cash will run short. It supports DIP budgets and lender negotiations.
5A company has EBIT of $900,000 and interest expense of $300,000. What is its times-interest-earned (interest coverage) ratio?
A.1.3
B.0.33
C.6.0
D.3.0
Explanation: Times interest earned equals EBIT divided by interest expense: $900,000 / $300,000 = 3.0. This means operating earnings cover interest three times over. A declining coverage ratio is a classic warning sign of impending distress.
6Which statement best describes 'balance-sheet insolvency'?
A.The company cannot pay debts as they come due
B.Total liabilities exceed the fair value of total assets
C.The company has negative operating cash flow
D.The company has breached a financial covenant
Explanation: Balance-sheet (or 'bankruptcy') insolvency exists when total liabilities exceed the fair value of total assets, leaving negative equity. This differs from equitable insolvency, which focuses on the inability to pay debts as they mature.
7A firm's accounts receivable total $600,000 and annual credit sales are $4,380,000. What is the approximate days sales outstanding (DSO)?
A.73 days
B.50 days
C.12 days
D.146 days
Explanation: DSO equals (accounts receivable / annual credit sales) x 365 = ($600,000 / $4,380,000) x 365 = 50 days. Rising DSO can signal weakening collections or extended terms granted to retain customers, a common distress symptom.
8Which financial statement is most directly used to assess whether a distressed company can meet near-term obligations?
A.Statement of retained earnings
B.Statement of cash flows
C.Balance sheet only
D.Notes to the financial statements
Explanation: The statement of cash flows shows cash generated and used by operating, investing, and financing activities, making it the primary tool for assessing liquidity and the ability to meet obligations. Turnaround work emphasizes cash over accrual earnings.
9In a leveraged company, an increase in financial leverage generally has what effect on the volatility of returns to equity holders?
A.It increases the volatility of equity returns
B.It decreases the volatility of equity returns
C.It has no effect on equity return volatility
D.It eliminates business risk
Explanation: Higher financial leverage magnifies both gains and losses to equity holders because fixed interest obligations must be paid regardless of operating results, increasing the volatility of equity returns. Excessive leverage is a frequent root cause of distress.
10A company's EBITDA is $5,000,000 and total debt is $20,000,000. What is its debt-to-EBITDA leverage ratio?
A.0.25x
B.4.0x
C.2.0x
D.5.0x
Explanation: Debt-to-EBITDA equals total debt divided by EBITDA: $20,000,000 / $5,000,000 = 4.0x. Lenders frequently set leverage covenants around this ratio, and a rising multiple signals deteriorating capacity to service debt.
About the TMA CTP Practice Questions
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