CCA Treasury & Cash Management Flashcards

What is the primary objective of corporate cash management?

Answer: To optimize liquidity by ensuring sufficient cash to meet obligations while minimizing idle cash balances

Cash management balances having enough liquidity to meet obligations against the opportunity cost of holding excess idle cash that could be invested or used to reduce debt.

What is a cash conversion cycle (CCC), and what does a shorter CCC indicate?

Answer: The time it takes to convert investments in inventory and receivables into cash; shorter means better liquidity management

CCC = Days Inventory Outstanding + Days Sales Outstanding – Days Payable Outstanding; a shorter CCC means the company converts its working capital into cash more quickly.

Which of the following best describes a lockbox system?

Answer: A bank-operated collection system where customers mail payments directly to a bank PO box to accelerate deposit processing

A lockbox system uses a bank-operated post office box to collect and process customer payments immediately, reducing float and accelerating the availability of funds.

What is 'float' in the context of cash management?

Answer: The difference between the cash balance shown on the bank statement and the company's book balance due to processing delays

Float is the delay between when a payment is made and when it clears the banking system, creating a difference between book and bank cash balances.

A company uses zero-balance accounts (ZBAs) in its cash management system. What is the primary benefit?

Answer: Centralizing excess funds in a master account while maintaining separate sub-accounts for disbursements that are funded automatically on demand

ZBAs allow companies to centralize idle cash in a master concentration account while subsidiary accounts are automatically funded only as checks are presented, optimizing cash utilization.

What type of short-term investment is most appropriate for a corporate treasurer seeking maximum liquidity and minimal credit risk?

Answer: US Treasury bills (T-bills)

T-bills are backed by the US government (minimal credit risk), are actively traded (maximum liquidity), and have short maturities suitable for cash management.