Bcom Bachelor of Commerce Corporate Finance & Financial Management 3

Question 1

Working capital is formally defined as:

Accepted Answer

Current assets minus current liabilities

Answer

Working capital = Current assets − Current liabilities, and it measures a firm's short-term liquidity and operational efficiency.

Question 2

The Cash Conversion Cycle (CCC) measures:

Accepted Answer

The time elapsed between paying for inventory and collecting cash from customers

Answer

CCC = Days Inventory Outstanding + Days Sales Outstanding − Days Payable Outstanding; it tracks the full operational cash cycle.

Question 3

A high Inventory Turnover ratio typically indicates that a company is:

Accepted Answer

Managing its inventory efficiently with fast-moving stock

Answer

High inventory turnover means inventory is sold and replenished quickly, reducing holding costs and the risk of obsolescence.

Question 4

The Price-to-Earnings (P/E) ratio is primarily used to:

Accepted Answer

Value a company's stock relative to its earnings per share

Answer

The P/E ratio = Market Price per Share ÷ Earnings per Share, and it indicates how much investors are paying for each dollar of earnings.

Question 5

Enterprise Value (EV) is best calculated as:

Accepted Answer

Market capitalization plus net debt (debt minus cash)

Answer

EV = Market Capitalization + Total Debt − Cash & Equivalents, representing the total acquisition cost of the business for all capital providers.

Bcom Bachelor of Commerce Practice Test