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

Net working capital is calculated as current assets minus current liabilities: $500,000 - $320,000 = $180,000.

Question 2

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

Accepted Answer

Depreciation period

Answer

The cash conversion cycle consists of days inventory outstanding, days sales outstanding, and days payable outstanding; depreciation is not a component.

Question 3

An aggressive working capital strategy is characterized by:

Accepted Answer

Financing long-term assets with short-term debt

Answer

An aggressive strategy relies heavily on short-term financing, even for long-term assets, to reduce costs at the expense of higher liquidity risk.

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

The quick ratio (acid-test ratio) excludes inventory and prepaid expenses, measuring liquidity with only cash, marketable securities, and receivables.

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

DIO = (Average Inventory / COGS) × 365 = ($400,000 / $2,000,000) × 365 = 73 days.

(CIA) Certified Industrial Accountant Practice Test

(CIA) Certified Industrial Accountant Practice Test

CIA Working Capital Management