AFP Liquidity Management

Question 1

Which of the following best defines liquidity in the context of corporate treasury management?

Accepted Answer

The ability to meet short-term financial obligations as they come due

Answer

The total market value of a company's equity shares

Answer

The ratio of long-term debt to total assets

Answer

The profitability generated from operating activities

Question 2

The current ratio is calculated as:

Accepted Answer

Current assets divided by current liabilities

Answer

Net income divided by total assets

Answer

Total debt divided by shareholders' equity

Answer

Operating cash flow divided by net sales

Question 3

A quick ratio (acid-test ratio) differs from the current ratio in that it:

Accepted Answer

Excludes inventory and prepaid expenses from current assets

Answer

Includes long-term investments in the numerator

Answer

Uses total liabilities instead of current liabilities in the denominator

Answer

Adds back depreciation to the numerator

Question 4

Which liquidity management strategy involves concentrating subsidiary cash balances into a single master account?

Accepted Answer

Cash pooling

Answer

Netting

Answer

Factoring

Answer

Dynamic discounting

Question 5

The cash conversion cycle (CCC) measures:

Accepted Answer

The time from raw material purchase to collection of cash from customers

Answer

The number of days to convert long-term assets to cash

Answer

The speed at which a company converts equity to debt

Answer

The interval between dividend payments and earnings reports

Question 6

Which of the following is a primary source of short-term liquidity for most corporations?

Accepted Answer

Revolving credit facility

Answer

Issuance of 30-year bonds

Answer

Initial public offering of common stock

Answer

Sale-leaseback of real estate

Question 7

Days Payable Outstanding (DPO) is calculated as:

Accepted Answer

Accounts payable divided by daily cost of goods sold

Answer

Accounts receivable divided by daily sales

Answer

Inventory divided by daily cost of goods sold

Answer

Net income divided by daily revenue