CIA Working Capital Management

Question 1

A company has current assets of $500,000 and current liabilities of $320,000. What is its net working capital?

Accepted Answer

$180,000

Answer

$820,000

Answer

$320,000

Answer

$500,000

Question 2

Which of the following is NOT a component of the cash conversion cycle?

Accepted Answer

Depreciation period

Answer

Days inventory outstanding

Answer

Days sales outstanding

Answer

Days payable outstanding

Question 3

An aggressive working capital strategy is characterized by:

Accepted Answer

Financing long-term assets with short-term debt

Answer

Holding large safety stocks of inventory

Answer

Maintaining high levels of cash reserves

Answer

Using long-term debt for all financing needs

Question 4

Which ratio measures a company's ability to meet short-term obligations using only its most liquid assets?

Accepted Answer

Quick ratio

Answer

Current ratio

Answer

Working capital ratio

Answer

Cash ratio

Question 5

A firm has average inventory of $400,000 and cost of goods sold of $2,000,000. What is the days inventory outstanding (DIO)?

Accepted Answer

73 days

Answer

50 days

Answer

200 days

Answer

20 days

Question 6

The primary goal of working capital management in an industrial firm is to:

Accepted Answer

Ensure sufficient liquidity while maximizing profitability

Answer

Maximize current assets at all times

Answer

Minimize all short-term liabilities

Answer

Eliminate accounts payable

Question 7

Which of the following actions would DECREASE the cash conversion cycle?

Accepted Answer

Negotiating longer payment terms with suppliers

Answer

Extending credit terms to customers

Answer

Increasing safety stock levels

Answer

Reducing accounts payable turnover