WORKING CAPITAL MANAGEMENT - Introduction and Strategies

The _________________ the amount of time between buying materials (inputs) to receiving payments from the customer the higher the risk to a firm.

• Longer

• Shorter

Sufficient working capital is needed to prevent a business from becoming insolvent.

• True

• False

Obtaining too much external finance to improve working capital can make the problem worse.

• True

• False

Net working capital is the difference between current assets and current liabilities.

• 
• 

Positive net working capital shows that the company is solvent.

• 
• 

The goal of working capital management is to ensure adequate cash flow for operations.

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• 

A company with more current assets has a low level of liquidity and therefore is low risk.

• 
• 

A company that use more current liabilities will have higher level of liquidity as well as its profitability.

• 
• 

A higher level of sales will require a higher level of working capital.

• 
• 

To financial analysts, “Working Capital” means the same as:

• Current Assets – Total Liabilities

• Total Assets – Current Liabilities

• Total Assets – Total Liabilities

• Current Assets – Current Liabilities