Working Capital Management: Master Cash Flow and Profitability

Question 1

What is the primary objective of working capital management?

Accepted Answer

Maintain liquidity for short-term obligations

Answer

Maximize short-term shareholder value

Answer

Minimize long-term debt financing costs

Answer

Drive long-term growth and profitability

Question 2

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

Accepted Answer

Equipment acquisition

Answer

Inventory management

Answer

Cash flow forecasting

Answer

Accounts payable management

Question 3

What is the ideal level of working capital for a business?

Accepted Answer

Sufficient to meet operational needs without excessive surplus

Answer

As low as possible

Answer

As high as possible

Answer

Equal to total current liabilities

Question 4

Which formula is used to calculate the working capital ratio?

Accepted Answer

Current Assets / Current Liabilities

Answer

Current Assets - Current Liabilities

Answer

(Current Assets + Current Liabilities) / 2

Answer

Current Liabilities - Current Assets

Question 5

What is the primary purpose of implementing working capital management policies?

Accepted Answer

To optimize cash flow and profitability

Answer

To comply with legal regulations

Answer

To minimize financial risk

Answer

To enhance stakeholder relationships

Question 6

Which of the following is classified as a non-current asset?

Accepted Answer

Land

Answer

Cash

Answer

Accounts receivable

Answer

Inventory

Question 7

What is the primary aim of effective working capital management?

Accepted Answer

Optimize cash flow and profitability

Answer

Maximize current assets

Answer

Minimize current liabilities

Answer

Reduce inventory levels to zero

Question 8

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

Accepted Answer

Long-term debt

Answer

Cash and cash equivalents

Answer

Inventory

Answer

Accounts receivable

Question 9

A company with a current ratio of 2.5 is considered to be:

Accepted Answer

More financially stable than a company with a current ratio of 1.5

Answer

Less liquid than a company with a current ratio of 1.5

Answer

More heavily leveraged than a company with a current ratio of 1.5

Answer

Operating at a loss

Question 10

A company that has a high inventory turnover ratio is likely to have:

Accepted Answer

A short cash conversion cycle

Answer

A large amount of obsolete inventory

Answer

High levels of working capital

Answer

Low days sales outstanding

Question 11

The primary objective of working capital management is to:

Accepted Answer

Optimize cash flow and profitability

Answer

Maximize profits

Answer

Minimize risks

Answer

Comply with accounting regulations

Question 12

How does effective working capital management contribute to a company's long-term financial stability and growth?

Accepted Answer

Improves cash flow management, reducing financial distress risk.

Accepted Answer

Enhances profitability by optimizing the use of current assets.

Accepted Answer

Supports long-term investments by providing financial flexibility.

Answer

Reduces operating costs and improves efficiency.

Question 13

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

Accepted Answer

Fixed assets

Answer

Accounts receivable

Answer

Inventory

Answer

Short-term investments

Question 14

Which of the following is a strategy for optimizing working capital?

Accepted Answer

Negotiating shorter payment terms with suppliers

Answer

Extending credit to customers

Answer

Increasing inventory levels

Answer

Reducing cash holdings

Question 15

Which of the following is a tool used to forecast cash inflows and outflows?

Accepted Answer

Cash budget

Answer

Balance sheet

Answer

Income statement

Answer

Statement of changes in equity

Question 16

What is the purpose of cash flow forecasting?

Accepted Answer

To predict future cash inflows and outflows

Answer

To evaluate investment opportunities

Answer

To analyze profitability

Answer

To manage inventory levels

Question 17

What is the primary function of a current asset?

Accepted Answer

To be converted into cash within one year

Answer

To generate future economic benefits

Answer

To provide long-term financing

Answer

To reduce operating expenses

Question 18

What is the formula for calculating the current ratio?

Accepted Answer

Current assets / Current liabilities

Answer

Quick assets / Current liabilities

Answer

Total assets / Total liabilities

Answer

Net income / Shareholder equity

Question 19

What is the primary goal of working capital management?

Accepted Answer

To ensure the availability of resources to meet the company's needs

Answer

To maximize shareholder value

Answer

To reduce operating costs

Answer

To increase sales revenue

Question 20

In a global economy, how does supply chain integration contribute to enhanced working capital management?

Accepted Answer

Accelerates cash conversion cycles.

Answer

Requires higher levels of safety stock.

Answer

Hinders adaptability to demand fluctuations.

Question 21

Which of the following is not a current asset included in working capital?

Accepted Answer

Long-term debt

Answer

Cash and cash equivalents

Answer

Accounts receivable

Answer

Inventory

Question 22

Which of the following ratios indicates the efficiency of inventory management?

Accepted Answer

Inventory turnover ratio

Answer

Debt-to-equity ratio

Answer

Gross profit margin

Answer

Current ratio

Question 23

What is the primary purpose of a cash budget?

Accepted Answer

To forecast cash inflows and outflows and identify potential cash shortages or surpluses

Answer

To make investment decisions and allocate funds effectively

Answer

To track actual cash flows and compare them to budgeted amounts

Answer

To calculate key financial ratios and assess financial performance

Question 24

Which of the following is NOT a current asset included in the calculation of working capital?

Accepted Answer

Long-term investments

Answer

Cash and cash equivalents

Answer

Accounts receivable

Answer

Inventory

Question 25

What is the primary objective of effective working capital management?

Accepted Answer

Optimizing cash flow and profitability

Answer

Minimizing risk

Answer

Meeting regulatory requirements

Answer

Reducing operating costs

Question 26

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

Accepted Answer

Enhanced customer satisfaction

Answer

Improved liquidity

Answer

Reduced financing costs

Answer

Increased profitability

Question 27

Which of the following is NOT considered a current asset in the context of working capital management?

Accepted Answer

Fixed assets

Answer

Cash

Answer

Inventory

Answer

Accounts receivable

Question 28

Which of the following financial ratios measures a company's ability to meet its short-term payment obligations?

Accepted Answer

Current ratio

Answer

Profit margin

Answer

Return on assets ratio

Answer

Debt-to-equity ratio

Question 29

What is the primary objective of effective working capital management?

Accepted Answer

To optimize cash flow and profitability

Answer

To increase sales revenue

Answer

To reduce expenses

Answer

To minimize taxes

Question 30

Which of the following is a common strategy used to manage accounts receivable effectively?

Accepted Answer

Offering early payment discounts

Answer

Reducing the sales price

Answer

Delaying the recognition of revenue

Answer

Increasing the credit period

Question 31

Which of the following is an advantage of holding excess inventory?

Accepted Answer

Improved customer service

Answer

Reduced spoilage

Answer

Increased sales revenue

Answer

Reduced warehousing costs

Question 32

What is the primary purpose of a line of credit in working capital management?

Accepted Answer

To provide a short-term source of financing

Answer

To pay off long-term debt

Answer

To finance the purchase of fixed assets

Question 33

Increasing inventory turnover will generally have what impact on working capital?

Accepted Answer

Reduce working capital

Answer

No impact on working capital

Answer

Increase working capital

Question 34

Which of the following factors is NOT used in forecasting cash flows?

Accepted Answer

Historical advertising expenses

Answer

Capital expenditures

Answer

Expected sales revenue

Answer

Operating expenses

Question 35

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

Accepted Answer

Property, plant, and equipment

Answer

Inventory

Answer

Accounts payable

Answer

Accounts receivable

Question 36

How can a company improve its cash conversion cycle?

Accepted Answer

Reduce the average collection period for receivables.

Answer

Increase the average age of inventory.

Answer

Increase the average payment period for payables.

Question 37

What is the primary goal of effective working capital management?

Accepted Answer

Maintain liquidity and solvency while maximizing profitability.

Answer

Minimize the cash conversion cycle at all costs.

Answer

Maximize the level of current assets.

Question 38

An increase in the accounts receivable turnover ratio indicates what?

Accepted Answer

The company is collecting its receivables more quickly.

Answer

The company is extending credit to customers more liberally.

Answer

The company's sales are declining.

Question 39

What is a disadvantage of holding high levels of inventory?

Accepted Answer

Increased risk of obsolescence and spoilage.

Answer

Improved bargaining power with suppliers.

Answer

Lower storage and insurance costs.

Answer

Reduced risk of stockouts.

Question 40

How can a company accelerate its cash inflows?

Accepted Answer

Offer discounts for early payment.

Answer

Increase the credit period offered to customers.

Answer

Delay payments to suppliers.

Question 41

Which of the following is a common source of short-term financing?

Accepted Answer

Trade credit.

Answer

Issuing bonds.

Answer

Retained earnings.

Answer

Selling common stock.