Working Capital Management Flashcards
7 cards from real CPFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Working Capital Management flashcards as text
A primary goal of cash management is to:
Answer: Accelerate collections and slow disbursements appropriately
Effective cash management speeds up cash inflows and prudently delays outflows to optimize available cash.
A lockbox system is used mainly to:
Answer: Reduce collection float by speeding up check processing
A lockbox reduces mail and processing float so customer payments are deposited and available faster.
'Float' in cash management refers to:
Answer: The difference between book balance and bank balance during clearing
Float is the time difference between when a payment is recorded and when funds actually clear the bank.
Which short-term investment is generally considered the most appropriate for parking excess corporate cash?
Answer: Treasury bills and money market instruments
Highly liquid, low-risk instruments like T-bills and money market funds are ideal for temporary cash surpluses.
A compensating balance is best described as:
Answer: A minimum deposit a borrower must keep with the lending bank
A compensating balance is a required minimum bank balance that effectively raises the loan's true cost.
The Baumol model of cash management is most analogous to which inventory model?
Answer: Economic Order Quantity (EOQ)
The Baumol model applies EOQ logic to cash, balancing transaction costs against the opportunity cost of holding cash.
Disbursement float that benefits the payer is created by:
Answer: The delay between writing a check and its clearing the company's account
Disbursement float gives the payer use of funds during the time it takes a check to clear.