CFC Working Capital Management

Question 1

What does the Cash Conversion Cycle (CCC) measure?

Accepted Answer

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

Answer

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

Question 2

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

Accepted Answer

Days Sales Outstanding (DSO)

Answer

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

Question 3

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

Accepted Answer

2.0

Answer

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.

Question 4

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

Accepted Answer

Accounts Payable

Answer

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.

Question 5

What does a negative net working capital position indicate?

Accepted Answer

Current liabilities exceed current assets

Answer

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.

(CFC) Certified Financial Controller Practice Test

(CFC) Certified Financial Controller Practice Test

CFC Working Capital Management