Working capital Quiz

What is working capital?

• The total assets of a company
• The difference between current assets and current liabilities
• The long-term debt of a company
• The profit generated by a company

Which of the following is not considered a current asset in working capital calculations?

• Cash
• Accounts Receivable
• Inventory
• Machinery and Equipment

A company's working capital is calculated as:

• Current Assets - Fixed Assets
• Current Liabilities - Fixed Assets
• Current Assets - Current Liabilities
• Current Liabilities - Long-term Liabilities

If a company has a negative working capital, it typically indicates:

• Financial stability
• Efficient use of resources
• Liquidity issues
• Strong long-term growth potential

What is the primary purpose of monitoring and managing working capital?

• Maximizing long-term profitability
• Minimizing taxes
• Ensuring the company can meet its short-term obligations
• Attracting investors

What is overcapitalization in working capital?

• Having excessive capital investment in current assets
• Having insufficient working capital to cover short-term obligations
• Achieving an optimal balance between assets and liabilities
• Maximizing shareholder wealth

Undercapitalization in working capital refers to:

• Having excessive cash reserves
• Having too much debt in the capital structure
• Not having enough long-term assets
• Insufficient working capital to support operations

Which of the following is a potential consequence of overcapitalization in working capital?

• Improved liquidity
• Reduced risk of bankruptcy
• Lower profitability
• Efficient asset utilization

Which of the following is a potential consequence of undercapitalization in working capital?

• Increased financial flexibility
• Improved credit rating
• Difficulty in paying short-term debts
• Higher return on investment