Working Capital Management EXAM
QUESTIONS AND ANSWERS 100%
SOLVED (Newest 2025)
What is working capital management? - Correct Answers
✅Includes both establishing working capital policy and then
the day-to-day control of cash, inventories, receivables,
accruals, and accounts payable.
What is working capital policy? - Correct Answers ✅The
level of each current asset.
How current assets are financed.
What are the two goals of inventory management? - Correct
Answers ✅1. To ensure that the inventories needed to
sustain operations are available.
2. To hold the costs of ordering and carrying inventories to
the lowest possible level.
*What are the 3 policies of efficient investment in operating
current assets? - Correct Answers ✅Relaxed policy
Restricted policy
Moderate policy
*What are the 3 approaches to financing operating current
assets? - Correct Answers ✅Maturity matching approach
(self-liquidating approach)
Aggressive approach
,Working Capital Management EXAM
QUESTIONS AND ANSWERS 100%
SOLVED (Newest 2025)
Conservative approach
*What are the advantages and disadvantages of - Correct
Answers ✅Advantages of short-term debt and long-term
debt
Disadvantages of short-term debt and long-term debt
What is the cash conversion cycle? - Correct Answers
✅Cash conversion cycle is a "working capital cycle".
The cash conversion cycle focuses on the time between
payments made for materials and labor and payments
received from sales and is defined as the following:
What is the equation for Cash Conversion Cycle? - Correct
Answers ✅CCC = ICP + ACP - PDP
Where each component of CCC is defined as:
-Inventory conversion period (ICP): Length of time between
purchasing materials or merchandise from suppliers and
recording sales to customers (this creates an account
receivable if the firm offers credit to its customers)
, Working Capital Management EXAM
QUESTIONS AND ANSWERS 100%
SOLVED (Newest 2025)
-Average collection period (ACP): Length of time customers
are given to pay for goods following a sale (Also called Days
sales outstanding (DSO) or receivables conversion period).
-Payable deferral period (PDP): Length of time a supplier
allows customer to defer payment after making a purchase.
Example: Targeted cash conversion cycle
GBM Inc. buys medical devices from manufacturers in China
and sells them in the U.S.
-50 days from the time GBM purchases merchandise ($10
million a month) until the time it sells to its customers.
-GBM's suppliers requires payment within 40 days.
-GBM gives its customers 60 days to pay for their purchases.
What is the GBM's target Cash Conversion Cycle (CCC)? -
Correct Answers ✅Cash conversion Cycle= Inventory
conversion period + Average collection period - Payables
deferral period
=50+60-40=70 days.
What does this indicate? Would the firm prefer shorter CCC?
QUESTIONS AND ANSWERS 100%
SOLVED (Newest 2025)
What is working capital management? - Correct Answers
✅Includes both establishing working capital policy and then
the day-to-day control of cash, inventories, receivables,
accruals, and accounts payable.
What is working capital policy? - Correct Answers ✅The
level of each current asset.
How current assets are financed.
What are the two goals of inventory management? - Correct
Answers ✅1. To ensure that the inventories needed to
sustain operations are available.
2. To hold the costs of ordering and carrying inventories to
the lowest possible level.
*What are the 3 policies of efficient investment in operating
current assets? - Correct Answers ✅Relaxed policy
Restricted policy
Moderate policy
*What are the 3 approaches to financing operating current
assets? - Correct Answers ✅Maturity matching approach
(self-liquidating approach)
Aggressive approach
,Working Capital Management EXAM
QUESTIONS AND ANSWERS 100%
SOLVED (Newest 2025)
Conservative approach
*What are the advantages and disadvantages of - Correct
Answers ✅Advantages of short-term debt and long-term
debt
Disadvantages of short-term debt and long-term debt
What is the cash conversion cycle? - Correct Answers
✅Cash conversion cycle is a "working capital cycle".
The cash conversion cycle focuses on the time between
payments made for materials and labor and payments
received from sales and is defined as the following:
What is the equation for Cash Conversion Cycle? - Correct
Answers ✅CCC = ICP + ACP - PDP
Where each component of CCC is defined as:
-Inventory conversion period (ICP): Length of time between
purchasing materials or merchandise from suppliers and
recording sales to customers (this creates an account
receivable if the firm offers credit to its customers)
, Working Capital Management EXAM
QUESTIONS AND ANSWERS 100%
SOLVED (Newest 2025)
-Average collection period (ACP): Length of time customers
are given to pay for goods following a sale (Also called Days
sales outstanding (DSO) or receivables conversion period).
-Payable deferral period (PDP): Length of time a supplier
allows customer to defer payment after making a purchase.
Example: Targeted cash conversion cycle
GBM Inc. buys medical devices from manufacturers in China
and sells them in the U.S.
-50 days from the time GBM purchases merchandise ($10
million a month) until the time it sells to its customers.
-GBM's suppliers requires payment within 40 days.
-GBM gives its customers 60 days to pay for their purchases.
What is the GBM's target Cash Conversion Cycle (CCC)? -
Correct Answers ✅Cash conversion Cycle= Inventory
conversion period + Average collection period - Payables
deferral period
=50+60-40=70 days.
What does this indicate? Would the firm prefer shorter CCC?
