Working Capital Management Flashcards
7 cards from real CTP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Working Capital Management flashcards as text
Which of the following actions would INCREASE net working capital?
Answer: Issuing a long-term bond and using proceeds to purchase inventory
Issuing long-term debt (non-current liability) to buy inventory (current asset) increases current assets without increasing current liabilities, raising net working capital.
A treasury analyst is forecasting cash flow using the direct method. Which data source is MOST relevant?
Answer: Scheduled receipts from customers and planned disbursements to suppliers
The direct method builds cash flow forecasts from actual expected cash inflows (customer receipts) and outflows (supplier payments), not accrual-based accounting items.
A company's weighted average cost of capital (WACC) is 8%. Its short-term investments yield 4%. What is the opportunity cost of holding excess cash?
Answer: The difference between WACC and the investment yield (4%)
The opportunity cost of holding excess cash is the difference between WACC (the minimum return required by investors) and the yield earned on the cash investment.
In zero-balance account (ZBA) structures, subsidiary accounts maintain a zero balance because:
Answer: Funds sweep automatically to or from a master concentration account
ZBA accounts automatically sweep deficits or surpluses to a central master account, keeping subsidiary balances at zero and centralizing liquidity.
Which ratio measures how efficiently a company converts inventory into sales?
Answer: Inventory turnover ratio
Inventory turnover (COGS / average inventory) measures how many times a company sells and replaces its inventory over a period.
A company with seasonal sales peaks should MOST likely use which type of working capital financing?
Answer: A revolving credit facility that can be drawn and repaid as needed
A revolving credit facility provides flexible access to short-term funds that can be drawn during peak demand and repaid when the season ends, matching financing to temporary needs.
Under Basel III liquidity requirements, the Liquidity Coverage Ratio (LCR) requires banks to hold enough high-quality liquid assets to cover net cash outflows over:
Answer: 30 days
The LCR requires banks to maintain sufficient high-quality liquid assets to survive a 30-day stress scenario of net cash outflows.