Treasury & Working Capital Management Flashcards
6 cards from real CFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Treasury & Working Capital Management flashcards as text
What is supply chain financing (reverse factoring)?
Answer: A program where buyers arrange early payment to suppliers through a bank at favorable rates, using the buyer's credit rating
In reverse factoring, the buyer's bank pays suppliers early at a discounted rate based on the buyer's strong credit, extending supplier payment terms while suppliers receive earlier cash.
What does 'days sales outstanding' (DSO) measure and why does it matter for working capital?
Answer: The average number of days to collect receivables after a sale; a lower DSO improves cash flow
DSO measures collection efficiency; a lower DSO means the company collects cash faster, reducing the investment in working capital and improving liquidity.
What is an accounts receivable aging report used for?
Answer: Monitoring overdue customer balances by time buckets to manage collections and estimate bad debt allowances
An aging report categorizes outstanding receivables by how long they've been overdue (e.g., 0–30, 31–60, 61–90 days), helping identify collection problems and estimate credit losses.
What is dynamic discounting in the context of accounts payable?
Answer: A program where buyers offer early payment to suppliers at a sliding discount tied to how early payment is made
Dynamic discounting allows suppliers to request early payment in exchange for a discount, with the discount rate varying based on how early payment is made.
In treasury risk management, what is counterparty risk?
Answer: The risk that the other party in a financial transaction will default on its obligations
Counterparty risk is the risk that the party on the other side of a financial transaction (e.g., a derivative contract) will fail to fulfill its obligations.
Which short-term investment option is backed by the US government and considered virtually risk-free?
Answer: US Treasury bills (T-bills)
US Treasury bills are direct obligations of the US government, making them the benchmark risk-free investment for short-term cash management purposes.