CTA Strategic Planning & Business Model Assessment 1 — Questions and Answers
Question 1: In a corporate turnaround, what is the first step in strategic assessment before developing a recovery plan?
- Immediately implement across-the-board cost cuts
- Conduct a root cause analysis to determine whether the problems are operational, financial, or strategic in nature (Correct answer)
- Hire a new CEO
- File for Chapter 11 bankruptcy protection
Correct answer: Conduct a root cause analysis to determine whether the problems are operational, financial, or strategic in nature
Identifying the true root cause — whether financial, operational, or strategic — determines the entire approach and prevents misallocating resources on the wrong interventions.
Question 2: A '5 Forces Analysis' in a distressed context helps the turnaround professional assess:
- The company's five largest creditors
- The structural attractiveness of the industry and whether the core business can be competitive long-term (Correct answer)
- The five most profitable product lines
- The five steps of the restructuring plan
Correct answer: The structural attractiveness of the industry and whether the core business can be competitive long-term
Porter's 5 Forces assesses industry competitiveness — if structural forces are overwhelming, turnaround may require a business model pivot or exit from the industry.
Question 3: Which scenario most strongly suggests a business model problem rather than a temporary financial problem?
- A short-term spike in raw material costs
- Secular decline in customer demand due to technological disruption of the company's core product (Correct answer)
- A one-time legal settlement reducing cash reserves
- A temporary tightening of credit markets
Correct answer: Secular decline in customer demand due to technological disruption of the company's core product
Secular demand decline from technological disruption is a structural business model problem requiring strategic reinvention, not just financial restructuring.
Question 4: A SWOT analysis in a turnaround context is most useful for:
- Calculating the present value of debt obligations
- Identifying internal capabilities that can be leveraged and external opportunities that can support recovery (Correct answer)
- Determining the order of creditor priority
- Analyzing the tax implications of debt cancellation
Correct answer: Identifying internal capabilities that can be leveraged and external opportunities that can support recovery
A SWOT analysis helps the turnaround team understand which core strengths to preserve and which external opportunities are realistic given the company's current position.
Question 5: When evaluating whether to pursue 'going concern' restructuring versus liquidation, the decisive factor is:
- Whether the company has any debt outstanding
- Whether the going-concern enterprise value exceeds the liquidation value, making reorganization economically rational (Correct answer)
- Whether the original founders still own equity
- Whether the company has been profitable in the past five years
Correct answer: Whether the going-concern enterprise value exceeds the liquidation value, making reorganization economically rational
If going-concern value exceeds liquidation value, restructuring creates more total value for all stakeholders; if not, liquidation maximizes recoveries.
Question 6: In strategic turnaround planning, 'core versus non-core' analysis is performed to:
- Separate debt from equity on the balance sheet
- Identify businesses or assets that can be divested to generate cash and allow management to focus on viable operations (Correct answer)
- Determine the organizational reporting structure
- Calculate the tax basis of each business unit
Correct answer: Identify businesses or assets that can be divested to generate cash and allow management to focus on viable operations
Divesting non-core assets raises cash, reduces complexity, and allows management to concentrate resources on the business units most capable of achieving a sustainable turnaround.
CTA Strategic Planning & Business Model Assessment 1
In a corporate turnaround, what is the first step in strategic assessment before developing a recovery plan?