Sample interview questions: How do you assess and manage liquidity risks associated with subsidiaries and affiliates?
Sample answer:
Assessing Liquidity Risks of Subsidiaries and Affiliates
- Review Subsidiary/Affiliate Financial Statements: Examine cash flow statements, balance sheets, and income statements to identify potential liquidity concerns, such as high debt-to-asset ratios, reliance on short-term financing, or limited cash reserves.
- Assess Business Operations: Evaluate the operating activities of the entities, including revenue generation, customer concentration, and industry trends, to determine their ability to generate cash flows or access liquidity in times of stress.
- Consider Legal and Regulatory Obligations: Identify any legal or contractual requirements that may impact liquidity, such as loan covenants, parent company guarantees, or mandatory debt repayments.
- Forecast Cash Flows: Develop detailed cash flow models for each entity to predict future cash flows and identify potential liquidity gaps or surpluses.
- Conduct Sensitivity Analysis: Perform sensitivity analysis to test the impact of different assumptions on liquidity, such as changes in revenue, expenses, or interest rates.
Managing Liquidity Risks of Subsidiaries and Affiliates
- Establish Liquidity Policies and Guidelines: Implement policies outlining the target liquidity levels, permissible sources of liquidity, and risk appet… Read full answer