What is the primary objective of working capital management?
a) Maximizing profits
b) Ensuring sufficient liquidity for day-to-day operations
c) Reducing debt
d) Increasing the value of fixed assets
Which of the following is considered current assets in working capital management?
a) Buildings
b) Equipment
c) Inventory
d) Land
What does a high current ratio indicate?
a) The company has excessive liabilities
b) The company may struggle to meet short-term obligations
c) The company has sufficient assets to cover its current liabilities
d) The company is overly reliant on short-term debt
Which of the following is NOT a component of working capital?
a) Cash
b) Accounts receivable
c) Long-term debt
d) Accounts payable
The working capital cycle measures the time it takes for a company to convert its: a) Assets into liabilities
b) Current liabilities into long-term debt
c) Inventory and receivables into cash
d) Fixed assets into working capital
Which of the following strategies can improve a company’s working capital position?
a) Delaying accounts payable
b) Extending the receivables period
c) Reducing inventory levels
d) Increasing long-term debt
A company’s quick ratio is a more conservative measure of liquidity than the current ratio because it excludes: a) Cash
b) Short-term debt
c) Inventory
d) Accounts payable
What is the formula for calculating working capital?
a) Total assets – Total liabilities
b) Current assets – Current liabilities
c) Total liabilities – Current liabilities
d) Fixed assets – Current liabilities
Which of the following would be considered a sign of poor working capital management?
a) High accounts receivable turnover
b) Low inventory turnover
c) High current ratio
d) Low quick ratio
Which of the following is a short-term financing option to manage working capital?
a) Issuing bonds
b) Taking out a short-term loan
c) Selling long-term assets
d) Issuing equity shares
Which of the following is an indicator of efficient working capital management?
a) High current ratio and high quick ratio
b) Low accounts receivable turnover
c) High inventory turnover
d) High levels of short-term debt
In a business, what does the term ‘net working capital’ refer to?
a) The difference between current assets and fixed assets
b) The difference between current assets and current liabilities
c) The difference between long-term debt and current liabilities
d) The difference between total assets and liabilities
What is the purpose of managing accounts receivable effectively?
a) To increase long-term debt
b) To reduce the collection period and improve cash flow
c) To increase inventory levels
d) To delay payments to suppliers
Which of the following is NOT a factor influencing working capital management?
a) The company’s operating cycle
b) Interest rates
c) The company’s dividend policy
d) Seasonality of sales
What is the cash conversion cycle in working capital management?
a) The time it takes to convert liabilities into assets
b) The time it takes for a company to convert cash into assets
c) The time it takes to convert inventory into cash
d) The time it takes to convert inventory and receivables into cash
What is the effect of poor working capital management on a company’s profitability?
a) It has no impact on profitability
b) It can lead to increased costs and reduced profitability
c) It leads to higher sales and greater profitability
d) It increases net profit margins
Which of the following is considered a current liability in working capital management?
a) Bank loans due in one year
b) Property tax due in two years
c) Accounts payable
d) Long-term debt
How does an increase in inventory affect working capital?
a) It decreases working capital
b) It has no effect on working capital
c) It increases working capital
d) It decreases liquidity but increases profitability
Which of the following is a key objective of cash management in working capital?
a) Maximizing cash reserves regardless of need
b) Maintaining sufficient cash flow to meet short-term obligations
c) Minimizing the cash balance to reduce interest costs
d) Increasing cash by delaying supplier payments
What is the primary risk of having excessive working capital?
a) Increased production costs
b) Reduced profitability due to underutilization of resources
c) Higher interest expenses
d) Reduced operational efficiency
Which of the following is true about working capital management for small businesses?
a) Small businesses often face difficulties in managing working capital due to limited access to financing
b) Small businesses have no working capital management concerns
c) Small businesses typically have more working capital than large businesses
d) Small businesses rely mostly on long-term financing for working capital needs
What is the impact of effective working capital management on a company’s stock price?
a) It has no effect on the stock price
b) It can improve stock price by improving liquidity and profitability
c) It always increases stock price
d) It decreases stock price due to increased costs
How can reducing accounts payable days improve working capital?
a) By increasing cash outflows
b) By increasing liquidity and shortening the working capital cycle
c) By improving profitability
d) By delaying cash payments to suppliers
Which of the following can improve the working capital turnover ratio?
a) Decreasing sales
b) Increasing inventory
c) Increasing sales and reducing inventory
d) Increasing receivables
Which of the following is true about managing working capital during periods of rapid growth?
a) It is easier to manage working capital due to higher cash inflows
b) Rapid growth often creates challenges in managing working capital due to higher demand for resources
c) Working capital management is unaffected by growth periods
d) Working capital should be reduced during growth periods
Why is the management of receivables crucial in working capital management?
a) It helps in reducing inventory
b) It ensures timely collection, improving liquidity
c) It is not important for working capital management
d) It increases the company’s total assets
What is the role of financial ratios in working capital management?
a) To measure a company’s profitability
b) To assess the effectiveness of working capital management
c) To determine the company’s dividend policy
d) To calculate the company’s tax liabilities
What does the term ‘operating cycle’ refer to in working capital management?
a) The time taken to convert long-term assets into current assets
b) The time taken for a company to purchase, produce, and sell its products
c) The time it takes for an investor to make a return on their investment
d) The time it takes for a company to receive payments for long-term debt
Which of the following actions would be effective for improving working capital management?
a) Increasing fixed asset purchases
b) Lengthening the payable period
c) Increasing the amount of long-term debt
d) Reducing inventory levels and speeding up receivables collection
How does effective working capital management contribute to a company’s long-term success?
a) By ensuring that the company has adequate cash to meet operational needs
b) By minimizing the company’s total assets
c) By reducing the need for loans
d) By maximizing the company’s equity base
