Theory of Financial Management Concepts Quiz - 29 May 2021

An increase in the average payment period will result in ________ in the operating cycle and ________ in the cash conversion cycle.

• an increase; a decrease

• a decrease; a decrease

• a decrease; no change

• no change; a decrease

A firm with a very low current ratio in comparison to the industry standard could lower the risk of unavailable short-term funds by moving toward ________ financing strategy.

• the aggressive

• the conservative

• a permanent

• a seasonal

A firm's credit ________ provides guidelines for determining whether to extend credit to a customer and how much credit to extend.

• scoring

• terms

• policy

• standards

As credit standards are relaxed, sales are expected to ________ and the investment in accounts receivable is expected to ________.

• increase; increase

• increase; decrease

• decrease; decrease

• decrease; increase

Which of the following is NOT one of the five C's of credit?

• character

• capital

• collability

• collateral

The goal of working capital management is to :

• balance current assets against current liabilities.

• pay off short-term debts.

• achieve a balance between risk and return in order to maximize the firm's value.

• achieve a balance between short-term and long-term assets so that they add to the achievement of the firm's overall goals.

The purpose of managing current assets and current liabilities is to

• achieve as low a level of current assets as possible.

• achieve as low a level of current liabilities as possible.

• achieve a balance between profitability and risk that contributes to the firm's value.

• achieve as high a level of current liabilities as possible.

The ________ is the time period that elapses from the point when the firm makes the outlay to purchase raw materials on account to the point when payment is made to the supplier of the goods.

• cash conversion cycle

• average payment period

• average age of inventory

• average collection period

The goal of a firm's cash management is to

• increase the cash conversion cycle

• increase the payment periods

• minimize cash requirement

• maximize cash outflows

An increase in the average payment period will result in ________ in the cash conversion cycle.

• an increase

• a decrease

• an undetermined change

• no change