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Working Capital Management Flashcards

7 cards from real CFC 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

  1. What does the Cash Conversion Cycle (CCC) measure?

    Answer: The number of days from purchasing inventory to collecting cash from sales, net of payables timing

    The CCC measures the net number of days between paying for inventory and collecting cash from customers, calculated as DIO + DSO - DPO.

  2. Which metric measures how quickly a company collects payments from customers after a sale?

    Answer: Days Sales Outstanding (DSO)

    DSO (Days Sales Outstanding) measures the average number of days it takes a company to collect payment from customers following a credit sale.

  3. A company has current assets of $500,000 and current liabilities of $250,000. What is the current ratio?

    Answer: 2.0

    Current Ratio = Current Assets / Current Liabilities = $500,000 / $250,000 = 2.0, indicating the company has $2 of current assets for every $1 of current liabilities.

  4. Which working capital component represents amounts owed to suppliers for goods or services already received?

    Answer: Accounts Payable

    Accounts payable represents amounts owed to suppliers for goods/services received but not yet paid, and is a key current liability in working capital management.

  5. What does a negative net working capital position indicate?

    Answer: Current liabilities exceed current assets

    Negative working capital means current liabilities exceed current assets; while often a warning sign, some efficient business models (e.g., large retailers) deliberately operate with negative working capital.

  6. Which of the following is excluded from the quick ratio (acid-test ratio) calculation?

    Answer: Inventory

    The quick ratio excludes inventory because it cannot be quickly converted to cash without a potential loss in value, making the ratio a more conservative liquidity measure.

  7. What is the primary goal of working capital management?

    Answer: Ensure adequate liquidity while optimizing operational efficiency

    Working capital management balances maintaining sufficient liquidity to meet short-term obligations with minimizing excess capital tied up in operations to maximize efficiency.