Question 1

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.

Accepted Answer

The answer of Determine the cash conversion cycle based on...

Question 2

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

Accepted Answer

The answer of A firm is said to be an...

Question 3

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.

Accepted Answer

The answer of Based on the following information, determine the...

Question 4

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

Accepted Answer

The operating cycle includes the time it takes to purchase, produce, sell products, and collect receivables. Paying suppliers is part of the cash cycle, not the operating cycle.

Question 5

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

Accepted Answer

The answer of A venture's cash conversion cycle will decrease...

Question 6

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

Accepted Answer

The purchase-to-payment conversion period measures the average time taken from the purchase of materials and labor to actual cash payment. The sale-to-cash conversion period measures the average time taken from making a sale to receiving the cash payment, while the inventory-to-sale conversion period measures the average time taken from the purchase of inventory to its sale to customers. The cash conversion cycle, on the other hand, is a measure of the time required for a company to convert its investments in inventory and other resources into cash flows from sales.

Question 7

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

Accepted Answer

The cash conversion cycle includes the time it takes to pay suppliers for purchases on credit, which is not part of the operating cycle. The operating cycle focuses on the time from buying materials to collecting sales revenue.

Question 8

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?

Accepted Answer

The cash conversion cycle 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. The sale-to-cash conversion period, inventory-to-sale conversion period, and purchase-to-payment conversion period are all components of the cash conversion cycle.

Question 9

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.

Accepted Answer

Inventory-to-sale conversion period = (Average inventories / Cost of goods sold) * 365 days= ($120,000 / $182,500) * 365 days= 240 days

Question 10

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

Accepted Answer

Short-term financial planning is concerned with the cash flow management of a venture in the near future, typically up to one year. It aims to ensure that the firm has enough cash inflows to cover its expected outflows, such as payments to suppliers, salaries, taxes, and debt obligations. By forecasting the cash flow, the firm can identify potential shortfalls and take corrective action, such as reducing expenses, delaying payments, or obtaining short-term financing. Therefore, short-term financial planning is crucial for the liquidity and solvency of the firm.

Question 11

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

Accepted Answer

The cash conversion cycle focuses on the time periods related to inventory, sales, and payments, not on fixed assets.

Question 12

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

Accepted Answer

The purchase-to-payment conversion period, when reduced, shortens the cash conversion cycle by delaying cash outflows, thus improving cash flow management.

Question 13

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

Accepted Answer

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

Question 14

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

Accepted Answer

The inventory-to-sale conversion period is measured by dividing the average daily cost of goods sold into the average inventory, indicating how long inventory is held before being sold.

Question 15

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

Accepted Answer

The operating cycle measures the time it takes to purchase raw materials, assemble a product, book the sale, and collect on the sale.

Question 16

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

Accepted Answer

The sale-to-cash conversion period measures the average number of days it takes for a company to convert its sales into cash, reflecting the time sales are tied up in accounts receivable.

Question 17

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

Accepted Answer

Seed financing is typically associated with the development stage, where initial funding is used to develop a business idea or concept before the company is fully operational.

Question 18

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

Accepted Answer

The answer of First-round financing is generally associated with which...

Quiz 6: Managing Cash Flow