What is working capital?
a) The capital invested in long-term assets
b) The capital invested in short-term assets
c) The capital invested in fixed assets
d) The capital invested in intangible assets
Answer: b) The capital invested in short-term assets
Which of the following is not a component of working capital?
a) Cash
b) Inventory
c) Accounts payable
d) Buildings
Answer: d) Buildings
Working capital is calculated as:
a) Current assets minus current liabilities
b) Fixed assets minus current liabilities
c) Current assets plus current liabilities
d) Fixed assets plus current liabilities
Answer: a) Current assets minus current liabilities
Positive working capital indicates:
a) The company has excess cash to invest in long-term projects
b) The company is unable to meet its short-term obligations
c) The company is operating efficiently and has enough current assets to cover current liabilities
d) The company is facing a financial crisis
Answer: c) The company is operating efficiently and has enough current assets to cover current liabilities
Negative working capital implies:
a) The company is highly profitable
b) The company is managing its cash flows effectively
c) The company may face difficulties in meeting its short-term obligations
d) The company has excess current assets
Answer: c) The company may face difficulties in meeting its short-term obligations
Which of the following is a source of working capital?
a) Accounts receivable
b) Accounts payable
c) Inventory
d) All of the above
Answer: d) All of the above
Working capital turnover ratio measures:
a) The efficiency of a company’s utilization of fixed assets
b) The liquidity of a company’s current assets
c) The effectiveness of a company’s management of working capital
d) The profitability of a company’s operations
Answer: c) The effectiveness of a company’s management of working capital
Which of the following is a strategy to improve working capital management?
a) Delaying payments to suppliers
b) Increasing inventory levels
c) Offering longer credit terms to customers
d) Accelerating accounts receivable collection
Answer: d) Accelerating accounts receivable collection
The cash conversion cycle measures:
a) The time it takes to convert cash into inventory
b) The time it takes to convert inventory into sales revenue
c) The time it takes to convert accounts receivable into cash
d) The time it takes to complete one full operating cycle
Answer: d) The time it takes to complete one full operating cycle
A company with a high working capital ratio is likely to have:
a) Low liquidity and difficulty in paying short-term obligations
b) Excess cash reserves and low profitability
c) Efficient working capital management and strong financial stability
d) A high debt burden and high financial risk
Answer: c) Efficient working capital management and strong financial stability
Which of the following is an example of a non-cash working capital item?
a) Accounts receivable
b) Inventory
c) Cash on hand
d) Accounts payable
Answer: d) Accounts payable
Working capital is essential for:
a) Financing long-term investments
b) Financing day-to-day operations
c) Acquiring fixed assets
d) Paying off long-term debt
Answer: b) Financing day-to-day operations
The working capital cycle is the time it takes for a company to:
a) Generate profits from its operations
b) Convert inventory into cash
c) Collect accounts receivable from customers
d) Pay its accounts payable to suppliers
Answer: b) Convert inventory into cash
A company’s working capital requirement is influenced by:
a) Seasonal fluctuations in sales
b) Changes in interest rates
c) International trade policies
d) Stock market performance
Answer: a) Seasonal fluctuations in sales
The working capital ratio is calculated as:
a) Current assets divided by current liabilities
b) Current liabilities divided by current assets
c) Total assets divided by total liabilities
d) Total liabilities divided by total assets
Answer: a) Current assets divided by current liabilities
A company with a low working capital ratio may indicate:
a) A strong ability to meet short-term obligations
b) Efficient utilization of current assets
c) Potential liquidity problems
d) High profitability
Answer: c) Potential liquidity problems
The cash-to-cash cycle measures the time it takes for a company to:
a) Convert cash into inventory
b) Collect accounts receivable
c) Convert inventory into sales
d) Complete one full operating cycle
Answer: d) Complete one full operating cycle
Which of the following is a working capital management strategy to reduce inventory levels?
a) Implementing just-in-time inventory systems
b) Offering longer credit terms to customers
c) Delaying payments to suppliers
d) Increasing cash reserves
Answer: a) Implementing just-in-time inventory systems
A company with a high level of accounts receivable turnover indicates:
a) Slow collection of payments from customers
b) Efficient management of accounts receivable
c) Difficulty in generating sales revenue
d) Excessive credit sales
Answer: b) Efficient management of accounts receivable
The working capital financing strategy that involves obtaining short-term loans to meet short-term obligations is called:
a) Equity financing
b) Debt financing
c) Trade credit financing
d) Asset-based financing
Answer: c) Trade credit financing
Which of the following is considered a spontaneous source of working capital?
a) Bank loans
b) Retained earnings
c) Equity investments
d) Trade credit from suppliers
Answer: d) Trade credit from suppliers
The operating cycle of a company includes which of the following?
a) Purchase of raw materials, production, and sale of finished goods
b) Payment of accounts payable, collection of accounts receivable, and repayment of long-term debt
c) Issuance of equity shares, payment of dividends, and acquisition of fixed assets
d) Calculation of net profit, distribution of dividends, and reinvestment of retained earnings
Answer: a) Purchase of raw materials, production, and sale of finished goods
The cash conversion cycle can be shortened by:
a) Extending payment terms to suppliers
b) Delaying collections from customers
c) Reducing inventory turnover
d) Accelerating accounts payable payments
Answer: d) Accelerating accounts payable payments
Which of the following is an indicator of inefficient working capital management?
a) High accounts payable turnover ratio
b) Low inventory turnover ratio
c) Short cash conversion cycle
d) High working capital turnover ratio
Answer: b) Low inventory turnover ratio
Working capital is primarily concerned with the management of:
a) Long-term debt
b) Fixed assets
c) Current assets and liabilities
d) Shareholders’ equity
Answer: c) Current assets and liabilities
The quick ratio is a measure of a company’s ability to:
a) Generate profits from its operations
b) Meet short-term obligations with its most liquid assets
c) Repay long-term debt
d) Maximize shareholder value
Answer: b) Meet short-term obligations with its most liquid assets
A company with a negative cash conversion cycle suggests:
a) Strong liquidity and cash flow management
b) Efficient utilization of working capital
c) Potential cash flow problems
d) Excessive reliance on debt financing
Answer: a) Strong liquidity and cash flow management
The working capital policy of a company refers to:
a) How the company manages its long-term investments
b) How the company finances its fixed assets
c) How the company manages its day-to-day operations
d) How the company manages its current assets and liabilities
Answer: d) How the company manages its current assets and liabilities