Sample interview questions: Can you explain your approach to evaluating a borrower’s working capital management?
Sample answer:
Evaluation of Working Capital Management
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Analysis of Key Metrics:
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Current ratio: Assesses short-term liquidity by comparing current assets to current liabilities.
- Quick ratio (acid-test ratio): Measures ability to meet immediate obligations, excluding inventory.
- Inventory turnover ratio: Indicates efficiency in inventory management, highlighting liquidity concerns if too high or low.
- Days sales outstanding (DSO): Evaluates credit collection efficiency, indicating potential cash flow issues if excessively long.
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Days payable outstanding (DPO): Assesses supplier payment practices, revealing potential cash conservation strategies.
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Operating Cycle Analysis:
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Calculates the time from inventory purchase to cash collection, providing insight into working capital requirements.
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Assesses the alignment between operating cycles and payment terms, identifying potential liquidity gaps.
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Cash Flow Analysis:
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Reviews cash flow from operations, identifying sources and uses of cash.
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Evaluates working capital fluctuation… Read full answer