Cash Flow Management Flashcards
7 cards from real CAT practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Cash Flow Management flashcards as text
A retailer has annual cost of goods sold of $730,000 and average inventory of $100,000. What is its days inventory outstanding (DIO)?
Answer: 50 days
DIO = (Average Inventory ÷ COGS) × 365 = ($100,000 ÷ $730,000) × 365 ≈ 50 days.
Which scenario best illustrates a liquidity risk arising from over-reliance on a single large customer?
Answer: The customer delays payment, causing the supplier to miss payroll
Dependence on one customer means a single late payment can eliminate enough cash inflow to disrupt obligations like payroll.
Which of the following would increase a company's operating cash flow without increasing its net income?
Answer: Collecting a long-outstanding receivable
Collecting an existing receivable converts a balance sheet asset to cash without recording new income, boosting operating cash flow.
What is the effect on cash flow when a company increases its accounts payable balance?
Answer: Operating cash flow increases because the company is delaying cash payments
Rising accounts payable means the company has received goods or services but not yet paid, conserving cash and boosting operating cash flow.
A seasonal business expects a large cash shortfall in December. Which short-term financing option is most appropriate?
Answer: An overdraft facility
An overdraft facility provides flexible, short-term borrowing that can be drawn and repaid quickly, matching seasonal cash needs.
A company's cash flow statement shows positive investing activities but negative operating and financing activities. What does this likely indicate?
Answer: The company is selling assets to fund ongoing losses
Positive investing cash flow combined with negative operating cash flow typically signals asset disposals being used to cover operating shortfalls.
When preparing a monthly cash budget, opening cash balance for March equals:
Answer: The closing cash balance at the end of February
The opening balance of one period is always the closing balance carried forward from the previous period.