Finance for Non-Finance Managers Working Capital Management 3

Question 1

What is the primary purpose of a cash flow forecast?

Accepted Answer

To predict when a business will run short of or have excess cash

Answer

A cash flow forecast predicts future cash inflows and outflows so management can plan for surpluses or shortfalls.

Question 2

Which action would REDUCE a company's cash conversion cycle?

Accepted Answer

Paying suppliers faster

Answer

Paying suppliers faster does not reduce the cash conversion cycle; reducing DPO actually lengthens it — wait, the correct answer here should be reconsidered. Collecting from customers faster OR paying suppliers slower reduces the CCC. Among the options, none seem ideal, but paying suppliers faster increases DPO reduction and lengthens CCC. The trick question answer is that none of these reduce CCC — but the closest correct reduction method is holding LESS inventory.

Question 3

A company's quick ratio excludes inventory because:

Accepted Answer

Inventory cannot always be quickly converted to cash

Answer

The quick ratio excludes inventory because it may not be easily or quickly liquidated at full value.

Question 4

Over-trading (or overtrading) in working capital management refers to:

Accepted Answer

A business expanding too fast without sufficient working capital

Answer

Overtrading occurs when a business grows sales rapidly without enough working capital to support that growth, risking insolvency.

Question 5

Which of the following best describes 'factoring' receivables?

Accepted Answer

Selling accounts receivable to a third party for immediate cash

Answer

Factoring is selling receivables to a factor (third party) at a discount in exchange for immediate cash.

Finance for Non-Finance Managers Practice Test

Finance for Non-Finance Managers Practice Test

Finance for Non-Finance Managers Working Capital Management 3