Working Capital Management: Master the Art of Short-Term Financial Stability

Question 1

Which of the following is NOT a benefit of effective working capital management?

Accepted Answer

Reduced shareholder value

Answer

Improved cash flow

Answer

Reduced risk of insolvency

Answer

Increased profitability

Question 2

What is the formula for calculating the current ratio?

Accepted Answer

Current Assets / Current Liabilities

Answer

Current Liabilities / Current Assets

Answer

(Current Assets + Current Liabilities) / 2

Answer

(Current Assets - Current Liabilities) * 100%

Question 3

What is the primary objective of trade credit?

Accepted Answer

To reduce the need for cash

Answer

To increase sales

Answer

To improve customer relationships

Answer

To minimise inventory costs

Question 4

Which of the following is NOT a method of financing working capital?

Accepted Answer

Equity issue

Answer

Overdraft

Answer

Invoice discounting

Answer

Trade credit

Question 5

What is the impact of a high current ratio on a business?

Accepted Answer

Reduced risk of bankruptcy

Answer

Increased borrowing costs

Answer

Improved access to trade credit

Answer

Lower return on assets

Question 6

Which of the following is a key performance indicator (KPI) used to measure working capital management?

Accepted Answer

Days Inventory Outstanding (DIO)

Answer

Gross Margin

Answer

Return on Equity (ROE)

Answer

Net Profit Margin

Question 7

What is the fundamental objective of working capital management in an organization?

Accepted Answer

To ensure sufficient resources for ongoing operations

Answer

To maximize shareholder wealth

Answer

To minimize the likelihood of financial difficulties

Answer

To enhance the company's profitability

Question 8

Which of the following is NOT a reason for a business to hold working capital?

Accepted Answer

Reward motive

Answer

Transaction motive

Answer

Precautionary motive

Answer

Speculative motive

Question 9

How does an increase in inventory levels affect the cash conversion cycle?

Accepted Answer

Lengthens the duration

Answer

Shortens the duration

Answer

Has no impact

Answer

Varies depending on the industry

Question 10

Which method can be used to reduce the average collection period for accounts receivable?

Accepted Answer

Offering early payment discounts

Answer

Extending credit terms

Answer

Increasing the minimum order size

Answer

Reducing inventory levels

Question 11

What is a primary advantage of just-in-time inventory management?

Accepted Answer

Reduced storage and carrying costs

Answer

Increased production lead times

Answer

Improved product quality

Answer

Higher levels of customer service

Question 12

What is the result of increasing the inventory turnover ratio?

Accepted Answer

Lower inventory levels and improved efficiency

Answer

Higher inventory levels and increased costs

Answer

No change in inventory levels

Answer

Reduced cost of goods sold

Question 13

Excessive working capital can lead to which of the following?

Accepted Answer

Reduced return on investment

Answer

Increased profitability and growth

Answer

Improved cash flow

Answer

Enhanced financial stability

Question 14

Which ratio calculates the time taken by a company to collect its accounts receivable?

Accepted Answer

Days sales outstanding

Answer

Quick ratio

Answer

Inventory turnover ratio

Answer

Current ratio

Question 15

The net working capital of a company is calculated as:

Accepted Answer

Current assets minus Current liabilities

Answer

Current liabilities minus Current assets

Answer

Total assets minus Total liabilities

Answer

Total liabilities minus Total assets

Question 16

Which of the following is NOT a factor influencing the working capital requirements of a business?

Accepted Answer

Interest rates

Answer

Industry type

Answer

Operating cycle length

Answer

Business growth rate

Question 17

What is the main objective of working capital management?

Accepted Answer

To ensure financial stability and growth

Answer

To minimize inventory levels

Answer

To maximize profits

Answer

To increase shareholder value

Question 18

Which of the following ratios is used to measure how well a company can pay its short-term obligations?

Accepted Answer

Current ratio

Answer

Quick ratio

Answer

Inventory turnover ratio

Answer

Accounts payable turnover ratio

Question 19

Which of the following factors does NOT impact a company's working capital needs?

Accepted Answer

Government regulations

Answer

Industry type

Answer

Sales volume

Answer

Operating cycle

Question 20

Which item is NOT included in the calculation of working capital?

Accepted Answer

Property and equipment

Answer

Cash on hand

Answer

Accounts receivable

Answer

Inventory

Question 21

What is the primary purpose of working capital management?

Accepted Answer

To ensure day-to-day financial stability and growth

Answer

To maximize revenue

Answer

To minimize risk

Answer

To comply with regulations

Question 22

Which of these methods is used to calculate the length of the working capital cycle?

Accepted Answer

A combination of the above

Answer

Inventory turnover ratio

Answer

Average collection period

Answer

Days payable outstanding

Question 23

Which type of inventory is typically valued at the lower of cost or net realizable value?

Accepted Answer

Finished goods

Answer

Raw materials

Answer

Work in progress

Answer

Supplies

Question 24

Which formula is used to calculate the quick ratio?

Accepted Answer

(Cash + Accounts receivable + Marketable securities) / Current liabilities

Answer

(Cash + Accounts receivable) / Current liabilities

Answer

(Cash + Inventory + Accounts payable) / Current liabilities

Answer

(Current assets - Current liabilities) / Total assets

Question 25

Which component forms part of working capital?

Accepted Answer

Current assets

Answer

Fixed assets

Answer

Long-term debt

Answer

Share capital

Question 26

What is the primary objective of managing working capital?

Accepted Answer

To ensure financial stability and growth

Answer

To maximize shareholder value

Answer

To reduce the cost of debt

Answer

To increase revenue

Question 27

Which financial ratio measures a company's short-term liquidity?

Accepted Answer

Current ratio

Answer

Debt-to-equity ratio

Answer

Return on equity

Answer

Inventory turnover ratio

Question 28

Which of the following is NOT an advantage of efficient working capital management?

Accepted Answer

Increased inventory

Answer

Enhanced liquidity

Answer

Improved profitability

Answer

Reduced risk of financial distress

Question 29

How does working capital relate to profitability?

Accepted Answer

The relationship depends on the industry and the company's circumstances.

Answer

Higher working capital always leads to higher profitability.

Answer

Lower working capital always leads to higher profitability.

Answer

There is no clear relationship.

Question 30

Why is managing working capital crucial in a competitive business environment?

Accepted Answer

Allows for swift adaptation to changing market conditions

Answer

Mitigates the risk of bankruptcy

Answer

Enhances customer loyalty

Answer

Boosts employee morale

Question 31

Which component of working capital represents the actual money a business has on hand?

Accepted Answer

Cash

Answer

Inventory

Answer

Share capital

Answer

Long-term debt

Question 32

The primary objective of effective working capital management is to:

Accepted Answer

Ensure financial stability

Answer

Increase company profits

Answer

Minimize operational expenses

Answer

Increase shareholder wealth

Question 33

Which financial ratio measures a company's capacity to cover its short-term obligations?

Accepted Answer

Current ratio

Answer

Return on assets

Answer

Inventory turnover ratio

Answer

Debt-to-equity ratio

Question 34

A company with a high inventory turnover ratio generally indicates:

Accepted Answer

Efficient inventory management

Answer

Excessive inventory levels

Answer

Stagnant sales

Answer

Liquidity issues

Question 35

The trade payables period of a company refers to:

Accepted Answer

Average time taken to pay suppliers

Answer

Total amount of money owed to suppliers

Answer

Percentage of sales made on credit

Answer

Credit period granted by suppliers

Question 36

Which of the following is a primary negative impact of ineffective working capital management on a company's financial performance?

Accepted Answer

Reduced profitability

Answer

Increased cash flow

Answer

Enhanced shareholder value

Question 37

Which of the following is NOT a component of working capital?

Accepted Answer

Long-term debt

Answer

Trade payables

Answer

Inventory

Answer

Cash

Question 38

Disposing of obsolete inventory is a technique used to manage which working capital component?

Accepted Answer

Inventory

Answer

Trade payables

Answer

Accounts receivable

Answer

Cash

Question 39

The primary objective of working capital management is to:

Accepted Answer

Ensure the availability of short-term assets to meet short-term liabilities

Answer

Minimize risk

Answer

Improve employee productivity

Answer

Maximize shareholder value

Question 40

Excessive working capital can lead to:

Accepted Answer

Reduced profitability

Answer

Increased flexibility

Answer

Enhanced credit rating

Answer

Improved liquidity

Question 41

The cash conversion cycle measures the average time it takes for a company to:

Accepted Answer

Convert cash invested in working capital back into cash

Answer

Pay its employees

Answer

Generate revenue from sales

Answer

Purchase inventory

Question 42

Which of the following factors can shorten the cash conversion cycle?

Accepted Answer

Reducing inventory levels

Answer

Increasing payment terms offered to customers

Answer

Delaying payments to suppliers

Answer

Raising interest rates

Question 43

Which of the following is a strategy that can be used to improve working capital management?

Accepted Answer

Negotiating favorable payment terms with suppliers

Answer

Increasing inventory levels

Answer

Delaying payments to creditors

Question 44

Which of the following is NOT included as a component of working capital?

Accepted Answer

Long-term investments

Answer

Inventory

Answer

Current assets

Answer

Current liabilities

Question 45

What is the ultimate goal of working capital management in a business?

Accepted Answer

To ensure the firm's short-term liquidity and profitability

Answer

To maximize shareholder wealth in the long run

Answer

To minimize long-term debt

Question 46

Which of the following is a key indicator of efficient working capital management?

Accepted Answer

High current ratio

Answer

Negative working capital

Answer

Long cash conversion cycle

Answer

Low debt-to-equity ratio

Question 47

What is the primary purpose of holding inventory in working capital management?

Accepted Answer

To meet customer demand and smooth production processes

Answer

To reduce operating costs

Answer

To generate revenue

Question 48

Which of the following is a significant benefit of implementing just-in-time (JIT) inventory management?

Accepted Answer

Reduced inventory holding costs

Answer

Enhanced product quality

Answer

Improved customer service

Answer

Increased production capacity

Question 49

Which of the following is a technique commonly used to reduce the cash conversion cycle?

Accepted Answer

Negotiating shorter payment terms with suppliers

Answer

Raising additional equity

Answer

Increasing production capacity

Answer

Expanding into new markets

Question 50

Which of the following is a potential risk associated with holding excessive working capital?

Accepted Answer

Reduced profitability

Answer

Enhanced customer satisfaction

Answer

Increased liquidity

Answer

Improved credit rating

Question 51

Why is forecasting crucial in the context of working capital management?

Accepted Answer

It enables businesses to anticipate future cash flows and plan accordingly

Answer

It guarantees future profitability

Answer

It eliminates the need for working capital