Deck 6: Working Capital Management

Question 1

Which of the following is a working capital account?

A) cash
B) machinery
C) goodwill
D) land

Answer 1

cash

Question 2

Which of the following is involved in working capital management?

A) intellectual capital
B) current assets
C) capital assets
D) intangible assets

Answer 2

current assets

Question 3

What is deducted from current assets to determine net working capital?

A) long-term borrowings
B) current liabilities
C) intangible assets
D) equity

Answer 3

current liabilities

Question 4

What is the goal of managing working capital?

A) to reduce the level of trade and other payables
B) to improve relationships with customers
C) to accelerate the movement of retained earnings
D) to accelerate the cash flow cycle

Question 5

What does the days of working capital measurement calculate?

A) the number of days of working capital a business holds to meet the average daily requirements of inventory
B) the number of days of working capital a business holds to meet the average daily requirements of purchases
C) the number of days of working capital a business holds to meet the average daily requirements of sales
D) the number of days of working capital a business holds to meet the average daily requirements of trade receivables

Question 6

What is deducted from the sum of inventories and trade receivables to calculate the days of working capital?

A) working capital loans
B) long-term debt
C) accrued liabilities
D) trade and other payables

Question 7

Which of the following is NOT required to calculate the days of working capital measurement?

A) average daily purchases
B) trade and other payables
C) trade receivables
D) inventories

Question 8

What does the cash conversion efficiency ratio measure?

A) the efficiency with which a business converts revenue to cash disbursements
B) the efficiency with which a business converts revenue to profitability within its operations
C) the efficiency with which a business converts revenue to cash flow per share
D) the efficiency with which a business converts revenue to cash flows within its operations

Question 9

What is the denominator in the cash conversion efficiency ratio?

A) profit for the year
B) revenue
C) operating income
D) gross profit

Question 10

What is the cash conversion cycle?

A) the periodic transformation of cash through working capital accounts and back to profitability
B) the periodic transformation of cash through working capital accounts and back to net working capital
C) the periodic transformation of cash through working capital accounts and back to revenue
D) the periodic transformation of cash through working capital accounts and back to cash

Question 11

Which of the following is a current liability?

A) trade receivables
B) prepaid expenses
C) marketable securities
D) accrued expenses

Question 12

What is included in cash in addition to a company's cash holdings?

A) long-term deposits
B) trade receivables
C) short-term deposits
D) inventories

Question 13

Who usually has responsibility for cash management?

A) the vice-president of operations
B) the treasurer
C) the internal auditors
D) the controller

Question 14

What is NOT a reason to maintain cash at an appropriate level?

A) to take advantage of opportunities
B) to speed up inventory turnover
C) to enable a business to conduct its ordinary operating transactions
D) to be prepared in case emergency funds are needed

Question 15

What does float refer to?

A) short-term deposits
B) time lag
C) Turnover
D) trade and other payables

Question 16

Which of the following approaches can reduce idle cash?

A) the electronic funds transfer process
B) cutting back expenses
C) offering trade discounts
D) increasing revenue

Question 17

Which of the following is included in investment securities?

A) trade receivables
B) bonds payable
C) prepaid expenses
D) treasury bills

Question 18

Which of the following approaches is excluded in managing marketable securities?

A) lower of cost and market approach
B) portfolio approach
C) guidelines approach
D) control limits approach

Question 19

When should a company take advantage of a supplier's offer of a trade discount?

A) when the cost of bank borrowing by the company is less than the trade discount
B) when the company has the cash available
C) only at year end
D) when the supplier's trade discount is greater than 1%

Question 20

Which of the following is NOT the mission of the credit manager?

A) to monitor payments made by customers
B) to grant credit to customers
C) to obtain all available discounts from suppliers
D) to set credit terms

Question 21

What amount will be paid if a company pays a $200 invoice with terms of 2% | 10, N | 30 after 20 days?

A) $190
B) $196
C) $200
D) $204

Question 22

Which of the following is used in a credit-scoring system to analyze the creditworthiness of potential customers?

A) annual expenses
B) annual income
C) assets
D) liabilities

Question 23

What is a key factor for determining whether a credit policy should be changed?

A) days of working capital
B) cash conversion ratio
C) cash flow cycle
D) return on investment

Question 24

What is involved with the average collection period?

A) trade and other payables
B) taxes payable
C) cash
D) trade receivables

Question 25

Which report does the credit manager examine to spot changes in customer-paying behaviour?

A) the aging of trade receivables
B) the aging of customer receipts
C) the aging of inventory
D) the aging of trade and other payables

Question 26

When might an indemnification policy provide insurance to a business for a catastrophic loss in cash?

A) when a large receivable comes uncollectible
B) when inventory becomes obsolete
C) when a plant stops operating as a result of a fire
D) when a business suffers a loss from operations

Question 27

Which of the following is an inventory management tool?

A) trades management
B) just-in-time
C) records management
D) aging of inventory

Question 28

What is included as an ordering cost in the EOQ formula?

A) the processing of an invoice
B) insurance
C) rent
D) spoilage

Question 29

What is included as a holding cost in the EOQ formula?

A) finance costs
B) paying for the order
C) receiving costs
D) accounting costs

Question 30

Which of the following is NOT involved in calculating the economic ordering quantity?

A) unit sales
B) number of different products sold
C) order costs
D) annual holding costs

Question 31

What key factor is taken into consideration when considering inventory replenishment?

A) lead time
B) supplier data
C) trade and other payables
D) cash conversion cycle

Question 32

How can additional cash be obtained?

A) by paying suppliers on a cash basis
B) by paying trade payables faster
C) by stretching trade payables
D) by prepaying expenses

Question 33

Which of the following is most similar to accruals such as salaries and taxes payable?

A) short-term loans
B) trade credit
C) trade receivables
D) inventories

Question 34

Which of the following is a working capital account?

A) long-term debt
B) intangible assets
C) inventories
D) capital assets

Question 35

What activity is performed by the credit manager?

A) overseeing trade and other payables
B) determining policies for supplier relationships
C) monitoring payments made to suppliers
D) billing the customers

Question 36

Which of the following is NOT included in inventory management?

A) collection history
B) economic ordering quantity
C) material requirements planning
D) just-in-time inventory management

Question 37

Which of the following is a holding cost?

A) accounting
B) receiving
C) paying an order
D) insurance

Question 38

Which of the following is an ordering cost?

A) insurance
B) safety systems
C) rent
D) accounting

Question 39

Working capital refers to all accounts appearing on the asset side of the statement of financial position.

Question 40

Net working capital can be calculated by deducting current liabilities from current assets.

Question 41

Working capital accounts are more liquid than non-current asset accounts.

Question 42

The goal of working capital management is to accelerate the cash flow cycle in the business after selling a capital asset.

Question 43

The objective of the days of working capital measure is to calculate the number of days of working capital a business holds in order to meet its average daily sales requirements.

Question 44

To calculate the days of working capital ratio, you have to divide only trade receivables by the average daily sales.

Question 45

The cash conversion efficiency ratio measures the efficiency with which a business converts revenue to cash flow within its operations.

Question 46

The cash conversion cycle represents the periodic transformation of non-current assets through working capital back to cash.

Question 47

A company can improve its cash conversion efficiency ratio by extending its average collection period.

Question 48

Cash consists of holdings and short-term deposits.

Question 49

Cash management is usually assigned to a high-level manager in a business, usually the chief financial officer (CFO) or the treasurer.

Question 50

One of the reasons for maintaining an adequate emergency fund is because of the difficulty in forecasting accurately the matching of cash receipts and cash disbursements.

Question 51

The main objective of cash management is to maintain a high level of cash so that profitability is NOT affected and payment of long-term commitments is possible.

Question 52

One way to increase profitability is to reduce the time lag between the date money is mailed by customers and the date it is deposited in a company's bank account.

Question 53

One of the activities of cash management is to determine exactly how much non-current assets are needed on hand to conduct the ongoing operations of a business.

Question 54

Float means the amount of funds tied up in cheques that have been written but are still in process and have NOT yet been collected.

Question 55

The electronic funds transfer is an effective means of collecting payments from customers.

Question 56

An effective way to improve the negative float is by introducing the concept of "just-in-time" management.

Question 57

One way to improve the negative float is by using post office boxes, which are locations where customers pay their accounts, which are subsequently transferred to the seller's bank account.

Question 58

Investment securities are funds invested in bonds and shares so that they can be converted into cash quickly.

Question 59

There are several strategies for managing marketable securities one of which is the "ride-the-yield" approach.

Question 60

An important mission of the credit manager is to set the right level of inventories so that it can be turned over quickly.

Question 61

Trade discounts can help a company's cash flow at the expense of earnings and may very well be a good tradeoff.

Question 62

By offering 2 | 10, N | 30 credit terms to customers, a company automatically improves its profitability.

Question 63

By offering 2 / 10, N / 30 credit terms it means that the price of an invoice is increased.

Question 64

Credit policies are decisions made regarding the extent of credit that should be extended to customers.

Question 65

To establish an appropriate credit policy, the credit manager must examine the changes in the level of profit generated as a result of a relaxed credit policy and the extra investment in inventories and trade receivables.

Question 66

Prompt completion and transmission of an invoice does NOT necessarily improve the cash cycle and profitability.

Question 67

The average collection period represents the number of days it takes for suppliers to pay their accounts.

Question 68

An average collection period of 50 days is better than 40 days.

Question 69

The aging of accounts is a report showing how long trade receivables have been outstanding such as the percentage of receivable past due for one month, two months, or other period.

Question 70

An indemnification policy is insurance a business takes against the catastrophic loss in inventories.

Question 71

A credit insurance policy is an insurance to cover losses suffered from a firm's trade receivables that become uncollectible.

Question 72

Turning inventory more slowly improves cash flow.

Question 73

The faster the inventory turns over, the lower the investment in inventories.

Question 74

A 6-time inventory turnover is better than 5 times.

Question 75

A periodic count of every item in stock is the first, fundamental principle of sound inventory management.

Question 76

A physical count of inventory provides the basic data necessary to perform an item analysis of the non-current assets.

Question 77

Raw materials inventories consist of partially assemble or incomplete goods in the production cycle.

Question 78

The material requirements planning is a method for developing a schedule to help coordinate and utilize resources in production.

Question 79

Just-in-time inventory management technique ensures that suppliers get their merchandise just when it is needed.

Question 80

The economic ordering quantity is a method that determines the optimum quantity of goods that should be ordered at any single time.