CFC Working Capital Management 3

Question 1

What is the Operating Cycle?

Accepted Answer

DIO + DSO

Answer

DPO + DSO

Answer

DIO - DPO

Answer

DIO + DSO - DPO

Question 2

Which working capital strategy involves maintaining higher levels of current assets relative to current liabilities to maximize liquidity?

Accepted Answer

Conservative strategy

Answer

Aggressive strategy

Answer

Moderate strategy

Answer

Maturity matching strategy

Question 3

Supply chain financing (reverse factoring) primarily benefits which party in the supply chain?

Accepted Answer

Suppliers, by enabling early payment at the buyer's lower financing rates

Answer

The buying company's shareholders exclusively

Answer

Only the financing bank

Answer

Customers of the buying company

Question 4

What is the primary liquidity risk of an aggressive working capital strategy?

Accepted Answer

Insufficient liquidity to meet short-term obligations

Answer

Excess liquidity reducing investment returns

Answer

Higher inventory carrying and storage costs

Answer

Increased uncollectible accounts receivable

Question 5

Which type of company is MOST likely to operate with a negative Cash Conversion Cycle?

Accepted Answer

A large retailer that collects cash immediately but pays suppliers on extended terms

Answer

A manufacturer with high raw material inventory levels

Answer

A professional services firm with large accounts receivable

Answer

A construction firm with long project completion timelines

Question 6

A supplier offers trade credit terms of '2/10 net 30.' What does this mean?

Accepted Answer

A 2% discount is available if paid within 10 days; otherwise, the full amount is due in 30 days

Answer

Pay within 2 days, or the full amount is due in 30 days with no discount

Answer

A 10% discount applies if paid within 2 days; otherwise, net 30 applies

Answer

The invoice carries a 2% monthly finance charge if not paid within 10 to 30 days

Question 7

Which metric best reflects a company's overall efficiency in managing its short-term operational funding cycle without external financing?

Accepted Answer

Cash conversion cycle

Answer

Debt-to-equity ratio

Answer

Return on equity

Answer

Interest coverage ratio