Deck 6: Managing Cash Flow

Question 1

"First-round financing" usually occurs during a venture's rapid-growth life cycle stage.

Answer 1

False

Question 2

The actions of monitoring financial performance, determining project cash needs, and obtaining first-round financing occurs during a venture's survival stage.

Answer 2

True

Question 3

Early-stage ventures are defined as firms that are only operating in either their development or startup stages.

Answer 3

False

Question 4

Even in a young, successful venture, restricted access to bank credit and with little to no access to short-term lending markets can hinder operations until the next round of financing.

Question 5

Preparing monthly cash budgets for a full year allows the entrepreneur to determine whether there will be a cash need, the maximum size of the cash need, and whether the need can be repaid during the year.

Question 6

"First-round financing" usually occurs during a venture's rapid-growth life cycle stage.

Question 7

The cash conversion cycle refers to the time it takes to convert a sale into net income.

Question 8

The sum of the inventory-to-sale conversion period and the purchase-to-payment conversion period minus the sale-to-cash conversion period is called the cash conversion cycle.

Question 9

Short-term cash planning tools include preparation of a: sales schedule, a purchases schedule, a wages and commissions schedule, and a cash budget.

Question 10

The "cash conversion cycle" measures the time it takes to pay off the principal on a loan.

Question 11

The sale-to-cash conversion period is calculated by dividing average revenues by net sales per day.

Question 12

Due to the difficulty of projecting financial statements for a young firm, short-term financial forecasts are never required of early-stage ventures.

Question 13

Cash shortages during the rapid growth stage frequently derive from the lack of operating profits to fund working capital and fixed asset investments needed to support sales growth.

Question 14

Short-term financial planning is critical during the survival stage because operations not yet turning a profit and the associated cash burn often lead to a venture's inability to pay its maturing liabilities.

Question 15

A cash budget shows a venture's projected revenues and expenses over a forecast period.

Question 16

The actions of screening business ideas, preparing a business model/plan, and obtaining seed financing occurs during a venture's development stage.

Question 17

Short-term financial planning typically involves preparing monthly financial statements and focuses on identifying and planning for net income demands on the business.

Question 18

A venture's operating schedules typically include a: sales schedule, purchases schedule, and wages and commissions schedule.

Question 19

A venture's operating cycle is the same as its cash conversion cycle.

Question 20

Conversion period ratios show the average time in days it takes to convert certain current assets and current liabilities into cash.

Question 21

Determine the cash conversion cycle based on the following information: inventory-to-sale conversion period = 112.9 days; sale-to-cash conversion period = 57.1 days; and purchase-to-payment conversion period = 76.8 days.

A) 93.2 days
B) 132.6 days
C) 170.0 days
D) 246.8 days
E) 365.0 days

Question 22

A firm is said to be an early stage venture when it is in which of the following except?

A) rapid growth stage
B) startup stage
C) development stage
D) survival stage
E) early-maturity stage

Question 23

Based on the following information, determine the venture’s cash conversion cycle: Inventory-to-sale conversion period = 112.9 days; Sale-to-cash conversion period= 57.1 days; and Purchase-to-payment conversion period = 76.8 days.

A) 170.0 days
B) 189.7 days
C) 93.2 days
D) 246.8 days
E) 133.9 days

Question 24

Which of the following is not part of the operating cycle?

A) time it takes to purchase products
B) time it takes to produce products
C) time it takes to sell the products
D) time it takes to pay suppliers
E) time it takes to collect receivables

Question 25

A venture's cash conversion cycle will decrease if the purchase-to-payment conversion period increases.

Question 26

Which of the following measures the average time from purchase of materials and labor to actual cash payment?

A) sale-to-cash conversion period
B) inventory-to-sale conversion period
C) purchase-to-payment conversion period
D) cash conversion cycle

Question 27

A major difference between a venture's operating cycle and the cash conversion cycle is the conversion cycle includes the time to:

A) buy materials
B) produce a finished good
C) collect sales made on credit
D) pay suppliers for purchases on credit

Question 28

Which of the following measures the average time it takes a firm to complete its operating cycle after deducting the days supported by trade credit and delayed payroll financing?

A) sale-to-cash conversion period
B) inventory-to-sale conversion period
C) purchase-to-payment conversion period
D) cash conversion cycle

Question 29

Calculate the inventory-to-sale conversion period based on the following information: average inventories = $120,000; average receivables = $90,000; average payables = $40,000; cost of goods sold = $182,500; and net sales = $365,000.

A) 240.0 days
B) 180.0 days
C) 90.0 days
D) 60.0 days
E) 45.0 days

Question 30

Short-term financial planning forecasts address whether a venture is expected to generate the required cash to meet its coming obligations.

Question 31

Which one of the following conversion periods is not a component in the cash conversion cycle?

A) inventory-to-sale conversion period
B) sale-to-cash conversion period
C) purchase-to-payment conversion period
D) fixed assets-to-usage conversion period

Question 32

Which one of the following conversion periods operates to reduce the length of the cash conversion cycle?

A) inventory-to-sale conversion period
B) sale-to-cash conversion period
C) purchase-to-payment conversion period
D) fixed assets-to-usage conversion period

Question 33

Most initial business plans contain monthly projected pro forma) financial statements for at least one year, and sometimes for two or more years.

Question 34

Which of the following is measured by dividing the average daily cost of goods sold into the average inventory?

A) sale-to-cash conversion period
B) inventory-to-sale conversion period
C) purchase-to-payment conversion period
D) cash conversion cycle

Question 35

A venture's operating cycle measures the time it takes:

A) to purchase raw materials
B) assemble a product
C) book the sale
D) collect on the sale
E) all of the above

Question 36

Which one of the following "measures" the average days of sales committed to the extension of trade credit?

A) sale-to-cash conversion period
B) inventory-to-sale conversion period
C) purchase-to-payment conversion period
D) cash conversion cycle period

Question 37

Seed financing is generally associated with which one of the following life cycle stages:

A) development stage
B) startup stage
C) survival stage
D) rapid-growth stage
E) early-maturity stage

Question 38

First-round financing is generally associated with which one of the following life cycle stages:

A) development stage
B) startup stage
C) survival stage
D) rapid-growth stage
E) early-maturity stage