Sample interview questions: How do you assess and manage the company’s exposure to liquidity risks and ensure sufficient cash flow for the company’s needs?
Sample answer:
Assessing Liquidity Risks
- Cash Flow Analysis: Regularly review cash inflows and outflows to identify potential shortfalls or surpluses.
- Scenario Analysis: Conduct stress tests to simulate various market scenarios and assess their impact on liquidity.
- Key Performance Indicators (KPIs): Monitor liquidity ratios such as current ratio, quick ratio, and cash conversion cycle to evaluate liquidity health.
- External Factors: Monitor macroeconomic indicators, industry trends, and competitor activity that may affect cash flows.
Managing Liquidity Risks
- Cash Management Strategies: Optimize cash collection and disbursement processes, implement zero-based budgeting, and consider factoring or asset-backed lending.
- Contingency Planning: Develop contingency plans to access additional funding sources in case of liquidity disruptions.
- Investment Portfolios: Invest excess cash in short-term, high-liquidity instruments to generate re… Read full answer