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CORPORATE FINANCE – WORKING CAPITAL MANAGEMENT
PRACTICE EXAM BANK: 100 VERIFIED QUESTIONS WITH
DETAILED RATIONALES
Corporate Finance / Financial Management / Treasury Management
Exam coverage:
✓ Section 1, Questions 1-25: Working Capital
Fundamentals: Covers definitions, current ratio, net
working capital, liquidity, and cash management
objectives.
✓ Section 2, Questions 26-50: Cash Conversion Cycle &
Ratios: Focuses on CCC calculation, DSO, DIO, DPO,
and liquidity ratio analysis.
✓ Section 3, Questions 51-75: Working Capital
Components: Emphasizes receivables, inventory,
payables, and short-term financing sources.
✓ Section 4, Questions 76-100: Advanced Topics &
Applications: Covers overtrading, financing policies,
self-liquidating debt, and empirical evidence.
Section 1: Questions 1-25: Working Capital
Fundamentals & Concepts
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1. Which one of the following is a working capital
management decision?
A. Determining the amount of long-term debt required to
complete a project
B. Determining whether to pay cash for a purchase or use
the credit offered by the supplier
C. Determining whether or not a project should be accepted
D. Determining the number of shares of stock to issue to
fund an acquisition
CORRECT ANSWER: B
RATIONALE: Working capital management involves
managing current assets and current liabilities. Deciding
whether to pay cash or use supplier credit directly affects
accounts payable, a key current liability. Options A and D
are capital structure decisions, and C is a capital budgeting
decision .
2. The term working capital is synonymous with:
A. Accounts payable
B. Current assets
C. Equity
D. Current liabilities
CORRECT ANSWER: B
RATIONALE: Working capital is synonymous with current
assets, representing the resources available to meet short-
term obligations. Net working capital is current assets
minus current liabilities .
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3. Net working capital is calculated as:
A. Current Assets + Current Liabilities
B. Current Assets − Current Liabilities
C. Fixed Assets − Liabilities
D. Equity − Liabilities
CORRECT ANSWER: B
RATIONALE: Net working capital is defined as the difference
between current assets and current liabilities. This measure
shows the liquidity position of a business and its ability to
meet short-term obligations .
4. Which of the following is NOT a goal of working capital
management?
A. Meet the operational needs of the company
B. Satisfy obligations as they come due
C. Maintain an optimal level of current assets
D. Maximize the investment in current assets
CORRECT ANSWER: D
RATIONALE: Working capital management aims to optimize,
not maximize, investment in current assets. Excessive
investment in current assets reduces profitability, while
inadequate investment increases risk. The goal is to find the
optimal balance between liquidity and profitability .
5. What is the primary objective of working capital
management?
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A. Maximizing long-term debt
B. Minimizing fixed assets
C. Ensuring liquidity and operational efficiency
D. Maximizing dividend payout
CORRECT ANSWER: C
RATIONALE: Working capital management focuses on
balancing current assets and current liabilities to ensure
sufficient liquidity for short-term obligations while operating
efficiently. The twin objectives are profitability and liquidity .
6. Which component is NOT part of working capital?
A. Accounts receivable
B. Inventory
C. Long-term investments
D. Cash
CORRECT ANSWER: C
RATIONALE: Working capital consists of current assets and
current liabilities. Long-term investments are non-current
assets and are not included in working capital calculations.
Cash, inventory, and receivables are all core current assets .
7. A negative working capital position indicates:
A. Excess liquidity
B. Strong profitability
C. Current liabilities exceed current assets
D. No financial risk
CORPORATE FINANCE – WORKING CAPITAL MANAGEMENT
PRACTICE EXAM BANK: 100 VERIFIED QUESTIONS WITH
DETAILED RATIONALES
Corporate Finance / Financial Management / Treasury Management
Exam coverage:
✓ Section 1, Questions 1-25: Working Capital
Fundamentals: Covers definitions, current ratio, net
working capital, liquidity, and cash management
objectives.
✓ Section 2, Questions 26-50: Cash Conversion Cycle &
Ratios: Focuses on CCC calculation, DSO, DIO, DPO,
and liquidity ratio analysis.
✓ Section 3, Questions 51-75: Working Capital
Components: Emphasizes receivables, inventory,
payables, and short-term financing sources.
✓ Section 4, Questions 76-100: Advanced Topics &
Applications: Covers overtrading, financing policies,
self-liquidating debt, and empirical evidence.
Section 1: Questions 1-25: Working Capital
Fundamentals & Concepts
, Page 2 of 45
1. Which one of the following is a working capital
management decision?
A. Determining the amount of long-term debt required to
complete a project
B. Determining whether to pay cash for a purchase or use
the credit offered by the supplier
C. Determining whether or not a project should be accepted
D. Determining the number of shares of stock to issue to
fund an acquisition
CORRECT ANSWER: B
RATIONALE: Working capital management involves
managing current assets and current liabilities. Deciding
whether to pay cash or use supplier credit directly affects
accounts payable, a key current liability. Options A and D
are capital structure decisions, and C is a capital budgeting
decision .
2. The term working capital is synonymous with:
A. Accounts payable
B. Current assets
C. Equity
D. Current liabilities
CORRECT ANSWER: B
RATIONALE: Working capital is synonymous with current
assets, representing the resources available to meet short-
term obligations. Net working capital is current assets
minus current liabilities .
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3. Net working capital is calculated as:
A. Current Assets + Current Liabilities
B. Current Assets − Current Liabilities
C. Fixed Assets − Liabilities
D. Equity − Liabilities
CORRECT ANSWER: B
RATIONALE: Net working capital is defined as the difference
between current assets and current liabilities. This measure
shows the liquidity position of a business and its ability to
meet short-term obligations .
4. Which of the following is NOT a goal of working capital
management?
A. Meet the operational needs of the company
B. Satisfy obligations as they come due
C. Maintain an optimal level of current assets
D. Maximize the investment in current assets
CORRECT ANSWER: D
RATIONALE: Working capital management aims to optimize,
not maximize, investment in current assets. Excessive
investment in current assets reduces profitability, while
inadequate investment increases risk. The goal is to find the
optimal balance between liquidity and profitability .
5. What is the primary objective of working capital
management?
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A. Maximizing long-term debt
B. Minimizing fixed assets
C. Ensuring liquidity and operational efficiency
D. Maximizing dividend payout
CORRECT ANSWER: C
RATIONALE: Working capital management focuses on
balancing current assets and current liabilities to ensure
sufficient liquidity for short-term obligations while operating
efficiently. The twin objectives are profitability and liquidity .
6. Which component is NOT part of working capital?
A. Accounts receivable
B. Inventory
C. Long-term investments
D. Cash
CORRECT ANSWER: C
RATIONALE: Working capital consists of current assets and
current liabilities. Long-term investments are non-current
assets and are not included in working capital calculations.
Cash, inventory, and receivables are all core current assets .
7. A negative working capital position indicates:
A. Excess liquidity
B. Strong profitability
C. Current liabilities exceed current assets
D. No financial risk
