- What is the primary goal of Working Capital Management?A) To maximize long-term investmentsB) To ensure that a company has sufficient cash flow to meet its short-term liabilities and operational expenses
C) To increase the number of suppliers
D) To expand the product line
Answer: B) To ensure that a company has sufficient cash flow to meet its short-term liabilities and operational expenses
- Which of the following components are typically involved in managing working capital?A) Accounts Receivable, Accounts Payable, and InventoryB) Long-term debt and equity financing
C) Capital expenditures and fixed assets
D) Marketing and R&D expenses
Answer: A) Accounts Receivable, Accounts Payable, and Inventory
- What is ‘Days Sales Outstanding’ (DSO) and why is it important?A) The average number of days it takes to pay off suppliers; important for managing cash flowB) The average number of days it takes to convert receivables into cash; important for assessing the efficiency of credit and collection policies
C) The average number of days for production; important for inventory management
D) The average number of days to receive inventory from suppliers; important for procurement planning
Answer: B) The average number of days it takes to convert receivables into cash; important for assessing the efficiency of credit and collection policies
- How can a company reduce its ‘Days Inventory Outstanding’ (DIO)?A) By increasing inventory levels to ensure product availabilityB) By improving inventory turnover rates and optimizing stock levels to reduce holding times
C) By extending payment terms with suppliers
D) By increasing lead times for inventory replenishment
Answer: B) By improving inventory turnover rates and optimizing stock levels to reduce holding times
- What does ‘Cash Conversion Cycle’ (CCC) measure?A) The time taken to convert cash into inventory and back into cash through salesB) The period required to pay off long-term debts
C) The duration of employee payroll cycles
D) The time needed for production processes
Answer: A) The time taken to convert cash into inventory and back into cash through sales
- What is the impact of extending ‘Days Payable Outstanding’ (DPO) on working capital?A) It improves cash flow by delaying payments to suppliers, potentially allowing more cash to be available for other usesB) It increases the cost of borrowing
C) It reduces the efficiency of inventory management
D) It decreases the company’s credit rating
Answer: A) It improves cash flow by delaying payments to suppliers, potentially allowing more cash to be available for other uses
- Which of the following strategies can help improve working capital management?A) Increasing the frequency of inventory auditsB) Optimizing the accounts receivable collection process and negotiating favorable terms with suppliers
C) Expanding production capacity
D) Increasing the number of sales channels
Answer: B) Optimizing the accounts receivable collection process and negotiating favorable terms with suppliers
- What is the significance of ‘Accounts Payable Turnover Ratio’ in working capital management?A) It measures how quickly a company pays off its suppliers, affecting cash flow and supplier relationshipsB) It indicates the efficiency of converting receivables into cash
C) It assesses the rate at which inventory is sold
D) It calculates the amount of cash generated from operations
Answer: A) It measures how quickly a company pays off its suppliers, affecting cash flow and supplier relationships
- What does ‘Working Capital Ratio’ (Current Ratio) indicate?A) The proportion of current assets to current liabilities, reflecting the company’s ability to meet short-term obligationsB) The ratio of long-term debt to equity
C) The proportion of inventory to total assets
D) The ratio of cash flow to capital expenditures
Answer: A) The proportion of current assets to current liabilities, reflecting the company’s ability to meet short-term obligations
- Which of the following is an example of improving working capital efficiency through better inventory management?A) Increasing safety stock levels to prevent stockoutsB) Implementing just-in-time (JIT) inventory practices to reduce excess inventory and free up cash
C) Extending payment terms with customers
D) Increasing production lead times
Answer: B) Implementing just-in-time (JIT) inventory practices to reduce excess inventory and free up cash