Lecture 5 Quiz - Working capital management

Which of the following is a reason why companies manage working capital?

• To secure long-term investment opportunities

• To meet short-term operational needs and expenses

• To prepare for merger and acquisitions

• To evaluate the company's strategic vision

What could a negative working working capital indicate about a company?

• It has a strong liquidity position

• It might face liquidity problems

• It is utilizing its assets very efficiently

• It has no short-term liabilities

What does the operating cycle measure?

• Time between purchasing raw materials and collecting cash from sales

• The company's ability to meet long-term financial obligations

• The effectiveness of the company's marketing campaigns

• The duration of long-term debt

What is the primary focus of working capital management?

• Long-term financing

• Investing in non-current assets

• Managing short-term assets and liabilities

• Evaluating company ethics

What is the primary purpose of calculating the cash conversion cycle?

• To measure the overall profitability of the company`

• To determine the efficiency of inventory management

• To assess the timing of cash inflows and outflows related to operations

• To track the long-term growth of the company

What role does cash conversion cycle play in financial management?

• It measures profitability over a period

• It determines the time lag between expenditure and receipt of cash from operations

• It represents the company's dividend payout ratio

• It tracks changes in market share

Why might a company with a very short conversion cycle be at a competitive advantage?

• It can invest in a long-term projects more frequently

• It can reduce its dependency on external financing

• It is likely to have a higher return on equity

• It is able to quickly reinvest cash into operations, reducing cash holding cost

Which of the following strategies can reduce Days Sales Outstanding (DSO)?

• Extending payment terms with suppliers

• Offering early payment discounts to customers

• Increasing inventory levels

• Decreasing marketing expenses

Which of the following is not a typical source of short-term funds?

• Trade credits

• Issuing stocks

• Money market instrumnets

• Bank overdraft

Which of the following is an example of a way to finance a shortfall in the cash conversion cycle?

• Increasing capital expenditure

• Issuing long-term bonds

• Taking out a short-term loan

• Selling a subsidiary company