RBC Capital Markets LLC Mock Interview
Practice 27 RBC Capital Markets interview questions covering deals, markets, and technical expertise.
Question 6 of 27
Have you ever run into a situation where a company had a positive cash flow but was still in critical financial trouble?
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Ryan Brunner has over ten years of experience recruiting, interviewing, and hiring candidates in the healthcare, public service, and private manufacturing/distribution industries.
At the heart of this question, your interviewer is looking to dive in and take a look at your critical thinking skills. While positive cash flow is usually a very good sign of a company's overall ability to settle its debts and handle future financial challenges, there are some situations where all isn't as it seems when looking at a company with a positive cash flow. Whether you have run into this situation or not, it is important for you to point out that you are aware of situations where a positive cash flow can be misleading.
Ryan Brunner has over ten years of experience recruiting, interviewing, and hiring candidates in the healthcare, public service, and private manufacturing/distribution industries.
"If hired for this position, you can rest assured that I know all considerations necessary when looking at cash flow for an organization when determining their overall financial health. A cash flow statement can often show positive cash flow when they take on new cash from loans or long-term debt. While these items do show up as positive on the cash flow, they don't accurately reflect the profitability of the organization."
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Anonymous Answer
Certainly. Off the top of my head, I can't provide specific names. However, while working on the financial distress prediction model at FreshBooks, I analyzed many companies that were classified as false positives because they had good or even great ratios, but they broke an obligation in a debt covenant, and the debt payments were accelerated. In most, if not all, of these cases, the company had positive cash flows but ultimately filed for Chapter 11 bankruptcy because they couldn't meet the sudden obligation. I learned that it's important to dig deep into a 10-K and read about the various debt instruments and their terms that a company is using. I suggested to my colleague at the time that we need to parse the 10-Ks to find situations where debt obligations will be accelerated if the company does not meet terms such as surpassing a predetermined threshold for revenue or current ratio.
Marcie's Feedback
Excellent response! Your answer is clear and direct. The interviewer will undoubtedly be impressed by your knowledge and experience when it comes to companies that have a positive cash flow yet still run into financial trouble. Great job!
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