CPFM Working Capital Management 2

Question 1

A company has current assets of $480,000 and current liabilities of $300,000. What is its current ratio?

Accepted Answer

1.6

Answer

0.625

Answer

180,000

Answer

2.4

Question 2

Which working capital financing approach matches the maturity of financing to the life of the asset being financed?

Accepted Answer

Maturity-matching (hedging) approach

Answer

Aggressive approach

Answer

Conservative approach

Answer

Float management

Question 3

The cash conversion cycle is calculated as days inventory outstanding plus days sales outstanding minus what?

Accepted Answer

Days payable outstanding

Answer

Days cash on hand

Answer

Operating cycle days

Answer

Average collection period

Question 4

A negative cash conversion cycle generally indicates that a company:

Accepted Answer

Collects from customers before paying suppliers

Answer

Is insolvent

Answer

Has excessive inventory

Answer

Cannot meet payroll

Question 5

Under a conservative working capital policy, a company typically holds:

Accepted Answer

Higher levels of current assets and more long-term financing

Answer

Minimal cash and high short-term debt

Answer

Negative net working capital

Answer

No inventory buffer

Question 6

Net working capital is defined as:

Accepted Answer

Current assets minus current liabilities

Answer

Total assets minus total liabilities

Answer

Cash minus accounts payable

Answer

Revenue minus operating expenses

Question 7

Which of the following would increase a company's net working capital?

Accepted Answer

Issuing long-term debt and holding the proceeds as cash

Answer

Paying off accounts payable with cash

Answer

Collecting an account receivable in cash

Answer

Buying inventory on credit