WorksheetsFNC3213 Working Capital Management
Total questions: 20
Worksheet time: 15mins
Working capital management focuses on the current assets and long term liabilities that determine the liquidity.
The goal of working capital management is to ensure adequate cash flow for operations.
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
What are the aspects of Working Capital Management?
Receivable management
Inventory management
Cash management
All of the above
Which of the following is NOT true of working capital?
It is the amount of capital the firm has available to pay for its operations
The amount of money a firm has to spend in the short term
It is a measure of the firm's liquidity
It is the sum total of a firm's fixed assets
What does a negative working capital indicate?
Financial distress
Efficient operations
Strong profitability
Excessive liquidity
Why is working capital crucial for businesses?
It represents long-term investments in the company.
It ensures high profitability at all times.
It covers day-to-day operational expenses.
It solely pertains to shareholders' equity.
Which of the following is not a component of current assets?
Building
Account Receivables
Inventory
Cash
The cash conversion cycle (CCC) is defined as ________.
Average Age of Inventory + Average collection period - Average Payable Period
Average Age of Inventory - Average collection Period - Average Payable Period
Average Age of Inventory + Average collection period + Average Payable Period
Average Age of Inventory - Average collection period + Average Payable Period
Which of the following would decrease a firm's cash conversion cycle?
Increase the inventory days.
Increase the accounts receivable day
Increase the accounts payable days.
Increase the cash days
Net working capital is defined as ________.
total assets minus total liabilities
total liabilities minus total assets
current liabilities minus current assets
current assets minus current liabilities
A decrease in current assets and an increase in current liabilities will ________ net working capital, thereby ________ the risk of insolvency
increase; increasing
decrease; increasing
increase;
reducing
decrease; reducing
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
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
What is the meaning of the term 2/10 net 30?
If the invoice is paid within 10 days, a 2% discount can be taken. If the invoice is paid between 11 and 29 days, a 1% discount can be taken. After 30 days, the full invoice is due.
If the invoice is paid within 2 days, a 10% discount can be taken; otherwise the full invoice is due in 30 days
If the invoice is paid within 2 days, a 10% discount can be taken; otherwise, a 2% discount can be taken if the invoice is paid in 30 days.
If the invoice is paid within 10 days, a 2% discount can be taken; otherwise the full invoice is due in 30 days.
Which of the following are the "5-C's of Credit"?
Character, Capacity, Compensation, Collateral, Conditions
Character, Capacity, Capital, Collateral, Conditions
Character, Cash, Credit, Collateral, Collectability
Cash, Capacity, Capital, Compensation, Collectability
What of the following best describes just-in-time inventory management?
Inventory is maintained as a buffer to meet uncertainties in demand, supply, and movements of goods.
A firm acquires inventory precisely when needed so that its inventory balance is always at, or close to, zero.
Production inefficiencies arising when production capacity stands idle for lack of materials are minimized by holding a small stock of essentials at all times.
A firm minimizes the time lags present in the supply chain by maintaining a certain amount of inventory to use in these lag times.
The difference between a firm's operating cycle and its cash cycle is ________.
its account receivable days
There is no difference between the cash and operating cycles.
its inventory days
its accounts payable days
