Deck 6: Managing Cash Flow

Question 1

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

Answer 1

False

Question 2

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 2

True

Question 3

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

Answer 3

False

Question 4

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 5

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

Question 6

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

Question 7

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

Question 8

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

Question 11

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 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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 22

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

Question 23

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 24

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 25

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 26

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 27

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 28

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)$31,000
E)$41,000

Question 29

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

Question 30

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

Question 31

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 32

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 33

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 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

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 36

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 37

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
E)330 days