Deck 6: Managing Cash Flow

Question 1

Most early-stage ventures can easily locate debt-financing arrangements.

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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.

Answer 3

True

Question 4

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

Question 5

Seed financing usually occurs during a venture's development life cycle stage.

Question 6

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 7

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

Question 8

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

Question 9

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 10

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

Question 11

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

Question 12

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

Question 13

A venture's operating cycle measures the time it takes to purchase required materials, assemble, and sell the product plus the time needed to collect receivables if the sales are on credit.

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

A common way to express a venture's anticipated cash needs is to project the balance sheet and income statement into the future and produce the statement of cash flows.

Question 20

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

Question 21

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 22

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 days
B)180 days
C)90 days
D)60 days

Question 23

Which 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 24

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

Question 25

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

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

Question 26

A firm would not be considered to be an early-stage venture when it reaches which of the following life cycle stages?

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

Question 27

The cash conversion cycle is the amount of time taken to buy materials and produce a finished good plus the time needed to collect sales made on credit minus the time taken to pay suppliers for purchases on credit.

Question 28

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

Question 29

Which 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 30

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

Question 31

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 32

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

Question 33

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 34

Which of the following is not considered to be an operating schedule?

A)sales schedule
B)balance sheet schedule
C)purchases schedule
D)wages and commissions schedule

Question 35

The process of examining exit opportunities is generally associated with which one of the following life cycle stages?

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

Question 36

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

Question 37

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

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

Question 38

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

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

Question 39

Which 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 40

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

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

Question 41

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)133.9 days

Question 42

A major difference exists between a venture's operating cycle and its cash conversion cycle because 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 43

Based on the following information, determine the average receivables (rounded to thousands of dollars)that were outstanding: net sales = $575,000; sale-to-cash conversion period = 57.1 days; purchase-to-payment conversion period = 76.8 days; and cost of goods sold = $380,000.

A)$90,000
B)$180,000
C)$121,000
D)$45,000

Question 44

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

A)purchase raw materials and assemble a product
B)assemble a product and book the sale
C)assemble a product, book the sale, and collect on the sale
D)purchase raw materials, assemble a product, book the sale, and collect on the sale

Question 45

Calculate the sale-to-cash 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)180 days
B)90 days
C)60 days
D)45 days

Question 46

Based on the following information, determine the venture's inventory-to-sale conversion period: cash conversion cycle = 250 days; sale-to-cash conversion period = 60 days; and purchase-to-payment conversion period = 70 days.

A)70 days
B)140 days
C)240 days
D)260 days