Working Capital Management: Master the Fundamentals for Financial Success

Question 1

Which of the following is NOT a benefit of effective cash management?

Accepted Answer

Improved customer satisfaction

Answer

Enhanced profitability

Answer

Reduced risk of insolvency

Answer

Enhanced financial flexibility

Question 2

Which of the following is a key difference between perpetual and periodic inventory systems?

Accepted Answer

The timing of inventory updates

Answer

The use of physical inventory counts

Answer

The level of inventory accuracy

Answer

The cost of operating the system

Question 3

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

Accepted Answer

Long-term debt

Answer

Cash

Answer

Inventory

Answer

Accounts receivable

Question 4

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

Accepted Answer

Accounts payable management

Answer

Cash management

Answer

Inventory management

Answer

Accounts receivable management

Question 5

Which inventory valuation method results in the lowest reported value of inventory on the balance sheet?

Accepted Answer

Last-in, first-out (LIFO)

Answer

First-in, first-out (FIFO)

Answer

Weighted average cost

Answer

Specific identification

Question 6

What is the primary goal of cash conversion cycle (CCC)?

Accepted Answer

To minimize the time it takes to convert cash into inventory and accounts receivable

Answer

To reduce the cost of holding cash

Answer

To increase the return on investment in accounts receivable

Answer

To eliminate the need for working capital

Question 7

What is the purpose of a lockbox system?

Accepted Answer

To accelerate the collection of accounts receivable

Answer

To reduce the cost of collecting accounts receivable

Answer

To improve customer service

Answer

To eliminate the need for credit management

Question 8

What is a repurchase agreement?

Accepted Answer

A secured loan in which the borrower pledges securities as collateral

Answer

An unsecured loan that is typically used to finance short-term working capital needs

Answer

A financial instrument that allows investors to buy and sell securities with a predetermined price and date

Answer

A type of factoring in which the factor assumes full credit risk

Question 9

In the context of working capital management, which of the following is NOT considered a current asset?

Accepted Answer

Accounts payable

Answer

Cash and cash equivalents

Answer

Inventory

Answer

Accounts receivable

Question 10

Which of the following is **not** considered part of working capital?

Accepted Answer

Fixed assets

Answer

Cash

Answer

Inventory

Answer

Accounts receivable

Question 11

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

Accepted Answer

Long-term debt

Answer

Cash

Answer

Inventory

Answer

Accounts receivable

Question 12

The primary objective of cash management is to:

Accepted Answer

Ensure sufficient cash to meet obligations and optimize its utilization

Answer

Maximize cash holdings

Answer

Minimize cash holdings

Answer

Generate income from cash

Question 13

Which inventory management technique aims to reduce inventory levels while maintaining acceptable customer service levels?

Accepted Answer

Just-in-time

Answer

Economic order quantity

Answer

First-in, first-out

Answer

Last-in, first-out

Question 14

The main reason for offering credit to customers is to:

Accepted Answer

Increase sales

Answer

Reduce bad debts

Answer

Improve customer loyalty

Answer

Generate interest income

Question 15

A key metric used to measure accounts receivable efficiency is:

Accepted Answer

Days sales outstanding

Answer

Inventory turnover ratio

Answer

Current ratio

Answer

Gross profit margin

Question 16

The optimal level of working capital for a company:

Accepted Answer

Varies depending on the industry, company, and its operating cycle

Answer

Is as low as possible

Answer

Is as high as possible

Answer

Should be able to cover all expenses indefinitely

Question 17

A company with a high working capital turnover ratio is likely to have:

Accepted Answer

Efficient use of working capital

Answer

Inadequate working capital

Answer

Too much cash on hand

Answer

Slow inventory movement

Question 18

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

Accepted Answer

Increased reliance on external financing

Answer

Improved profitability

Answer

Reduced risk of insolvency

Answer

Enhanced shareholder value

Question 19

Net working capital is calculated as:

Accepted Answer

Current assets - current liabilities

Answer

Current liabilities - current assets

Answer

Total assets - total liabilities

Answer

Equity - liabilities

Question 20

What is a primary objective of working capital management?

Accepted Answer

Maximizing the company's liquidity

Answer

Minimizing the company's working capital

Answer

Increasing the company's profitability

Answer

Reducing the company's financial risk

Question 21

Which inventory valuation method typically results in the highest reported inventory value?

Accepted Answer

Last-in, first-out (LIFO)

Answer

First-in, first-out (FIFO)

Answer

Weighted average cost

Answer

Specific identification

Question 22

What is a key benefit of implementing a lockbox system?

Accepted Answer

Accelerated collection of accounts receivable

Answer

Reduced processing costs

Answer

Improved customer satisfaction

Answer

Reduced credit risk

Question 23

Which factor should NOT be considered when setting credit terms?

Accepted Answer

Sales growth targets

Answer

Industry norms

Answer

Customer creditworthiness

Answer

Company's liquidity position

Question 24

What is the primary purpose of an inventory turnover ratio?

Accepted Answer

To assess the efficiency of inventory management

Answer

To calculate the cost of goods sold

Answer

To determine the average inventory holding period

Answer

To predict future inventory levels

Question 25

What is the primary objective of working capital management?

Accepted Answer

Improving a company's financial performance and returns

Answer

Minimizing the cost of capital

Answer

Maximizing the company's market share

Answer

Meeting short-term obligations

Question 26

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

Accepted Answer

Long-term debt

Answer

Cash and cash equivalents

Answer

Accounts receivable

Answer

Inventory

Question 27

Which of the following is not a potential risk associated with working capital management?

Accepted Answer

Increased profitability

Answer

Overstocking of inventory

Answer

Shortage of cash

Answer

Inability to fulfill customer orders

Question 28

Which component is NOT included in working capital management?

Accepted Answer

Investments management

Answer

Cash management

Answer

Inventory management

Answer

Accounts payable management

Question 29

The primary objective of cash management is to:

Accepted Answer

Maintain an optimal level of cash to meet liquidity needs and maximize returns

Answer

Maximize cash holdings

Answer

Minimize cash holdings

Answer

Reduce the risk of insolvency

Question 30

How does implementing advanced inventory forecasting techniques, like AI-powered software, enhance working capital management?

Accepted Answer

Improves inventory accuracy, reducing overstocking

Answer

Eliminates the need for manual inventory counting

Answer

Increases inventory holding costs

Answer

Complicates inventory management processes

Question 31

Which of the following is a potential drawback of ineffective working capital management?

Accepted Answer

Increased inventory holding costs

Answer

Improved cash flow

Answer

Reduced risk of insolvency

Question 32

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

Accepted Answer

Long-term debt

Answer

Inventory

Answer

Cash and cash equivalents

Answer

Accounts receivable

Question 33

What is the primary goal of inventory management?

Accepted Answer

To maintain an optimal level of inventory to meet demand while minimizing carrying costs

Answer

To maximize inventory levels

Answer

To reduce inventory costs regardless of demand

Question 34

What is the purpose of working capital management?

Accepted Answer

To ensure that a company has sufficient liquidity to meet its short-term financial obligations

Answer

To reduce operating expenses

Answer

To maximize shareholder wealth

Question 35

What is the primary distinction between current assets and current liabilities?

Accepted Answer

Current assets are expected to be converted into cash within one year, while current liabilities are due within one year

Answer

Current assets are more valuable than current liabilities

Question 36

Which of the following is a key metric for evaluating accounts receivable efficiency?

Accepted Answer

Days sales outstanding (DSO)

Answer

Return on equity

Answer

Gross profit margin

Answer

Inventory turnover

Question 37

What is the impact of holding excess inventory?

Accepted Answer

Increased storage costs, reduced liquidity, and potential obsolescence

Answer

Improved customer service

Answer

Increased sales revenue

Question 38

What is the main objective of accounts receivable factoring?

Accepted Answer

To convert outstanding accounts receivable into immediate cash flow

Answer

To reduce credit risk

Answer

To improve customer relationships