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 the primary objective of treasury management?
Answer: Ensuring the company has sufficient liquidity while managing financial risks efficiently
Treasury management ensures the company has adequate liquidity to meet obligations, manages financial risks (interest rate, FX, credit), and optimizes the cost of capital.
What is working capital defined as?
Answer: Current assets minus current liabilities
Working capital is calculated as current assets minus current liabilities, representing the short-term liquidity available to fund day-to-day operations.
What is days payable outstanding (DPO)?
Answer: Average number of days a company takes to pay its suppliers
DPO measures how long a company takes to pay its accounts payable, calculated as (accounts payable ÷ COGS) × days in the period.
Which of the following increases a company's working capital?
Answer: Issuing long-term bonds and using proceeds to buy inventory
Issuing long-term bonds increases cash (a current asset) without increasing current liabilities, thereby increasing working capital.
What is an interest rate swap?
Answer: A derivative where two parties exchange fixed-rate and floating-rate interest payments on a notional principal
An interest rate swap involves exchanging a fixed interest rate for a floating rate (or vice versa) on a notional principal amount, allowing companies to manage rate risk without refinancing debt.
What is a commercial paper (CP) program used for in corporate treasury?
Answer: Short-term unsecured borrowing by investment-grade companies to fund working capital
Commercial paper is a short-term (typically 1–270 days) unsecured promissory note issued by investment-grade companies to fund short-term working capital needs.