Certified Treasury Professional Working Capital Management Questions and Answers

Question 1

A company has a Days Inventory Outstanding (DIO) of 45 days, a Days Sales Outstanding (DSO) of 35 days, and a Days Payables Outstanding (DPO) of 40 days. What is the company's Cash Conversion Cycle (CCC)?

Accepted Answer

40 days

Answer

The Cash Conversion Cycle (CCC) is calculated using the formula: CCC = DIO + DSO - DPO. Using the provided values: CCC = 45 days + 35 days - 40 days = 40 days. This metric represents the number of days it takes for a company to convert its investments in inventory and other resources into cash flows from sales.

Question 2

Which of the following describes an aggressive working capital financing policy?

Accepted Answer

Financing a portion of permanent current assets with short-term, lower-cost liabilities.

Answer

An aggressive working capital policy involves using a higher proportion of short-term, lower-cost, and riskier financing to fund assets, including a portion of permanent current assets. This approach aims to increase profitability by minimizing the cost of financing but increases liquidity risk.

Question 3

A treasury manager at a manufacturing firm is tasked with optimizing working capital. The company has been experiencing lengthening cash conversion cycles. Which of the following actions would be MOST effective in shortening the cash conversion cycle?

Accepted Answer

Negotiating with suppliers to extend payment terms from 45 to 60 days.

Answer

Extending payment terms with suppliers increases the Days Payables Outstanding (DPO). Since DPO is subtracted in the Cash Conversion Cycle formula (CCC = DIO + DSO - DPO), increasing DPO will decrease the CCC. The other options would lengthen the CCC: increasing customer credit periods increases DSO, increasing inventory increases DIO, and paying suppliers immediately decreases DPO.

Question 4

All of the following are primary objectives of accounts receivable management EXCEPT:

Accepted Answer

Maximizing the days sales outstanding (DSO).

Answer

A primary goal of accounts receivable management is to minimize, not maximize, the Days Sales Outstanding (DSO). A lower DSO indicates that a company is collecting its receivables more quickly, which improves cash flow and liquidity. The other options are all key objectives of effective AR management.

Question 5

A company is considering implementing a new inventory management system. Which system is designed to minimize inventory holding costs by receiving goods only as they are needed in the production process?

Accepted Answer

Just-in-Time (JIT)

Answer

The Just-in-Time (JIT) inventory system is a strategy focused on reducing in-process inventory and associated carrying costs. The goal is to have materials arrive from suppliers at the precise moment they are needed for production, thus minimizing the need to hold stock.

Certified Treasury Professional Exam Practice Test

Certified Treasury Professional Exam Practice Test

Certified Treasury Professional Working Capital Management Questions and Answers