Finance for Non-Finance Managers Working Capital Management 1

Question 1

What is working capital defined as?

Accepted Answer

Current assets minus current liabilities

Answer

Working capital is current assets minus current liabilities, measuring short-term liquidity.

Question 2

Which of the following is an example of a current asset?

Accepted Answer

Accounts receivable

Answer

Accounts receivable is a current asset because it is expected to be collected within one year.

Question 3

A company has $500,000 in current assets and $200,000 in current liabilities. What is its working capital?

Accepted Answer

$300,000

Answer

Working capital = $500,000 − $200,000 = $300,000.

Question 4

What does a negative working capital typically indicate?

Accepted Answer

The company may struggle to meet short-term obligations

Answer

Negative working capital means current liabilities exceed current assets, signaling potential liquidity problems.

Question 5

Which of the following strategies helps improve working capital?

Accepted Answer

Speeding up collection of accounts receivable

Answer

Collecting receivables faster converts credit sales to cash more quickly, boosting working capital.

Finance for Non-Finance Managers Practice Test