Answer: Working Capital Management CS Executive Financial and Strategic Management MCQQuestions with Answers you can quickly revise the concepts. (A) Added to gross working capital. (D) Current assets less current liabilities The permanent part comes from the consistent need for a business to meet the permanent working capital requirement, regardless of how the businesss activity levels might look. Answer: Therefore, the company would be able to pay every single current debt twice and still have money left over. (C) Matching/hedging Approach Heres a condensed look at how permanent working capital compares with temporary working capital: It should go without saying that permanent and temporary working capital demand different levels of attention. (B) If a company increases its current liabilities by 1,000 and simultaneously increases its inventories by 1,000, its quick ratio must fall. (D) Both Statement I and Statement II are incorrect. There has been a plethora of research works about entrepreneurship in the last two decades since enterprises are now treated as one the major driving forces, if not the most influential, of global economy as a whole. (i) Reduction of manufacturing cycle. Cash monitoring is needed by both individuals and businesses for financial stability. 1) Definition of Working Capital. (A) Working capital decreases as compared to last year The interest rate is 10% on all debts. The effective tax rate is 40%. What can be considered the firms permanent working capital? (A) As average collection period increases (decreases) the accounts receivable turnover decreases (increases) Answer: Last, working capital assumes all debt obligations are known. C. portion of net working capital that is financed from long-term sources. (D) Making greater use of long term finance and maximizing net short term asset. Next, make a list of the daily values for your net working capital. (D) the company is able to pay-off its short-term liabilities. (D) Bills receivable (B) the average number of days it takes to produce the product that company intends to sale. It is stated in the problem that rate of gross profit is 2096 and export sales price 1096 below domestic price. (A) Current Profit Sales 46.80 lakh (25% cash sales and balance on credit): 78,000 units (C) current assets minus inventories. Purchase of stock for cash will current ratio. To be clear, that number will change as your company grows and as your assets and liabilities change. inventory period and payable period the same, then: A firm paid out a dividend of $700,000 and repaid $1,000,000 notes payable. Learn about company liquidity, operational efficiency, and short-term health. Answer: Answer: D) $390,000 Workings Permanent working capital refers to the base working capital, which is the minimum level of working capital that is carried by the entity at all times to car View the full answer Transcribed image text: Working capital is also represented by a firm's net investment in current assets necessary to support its everyday business. Contingencies are .. (C). (A) A desire to maintain an established dividend policy may affect the volume of working capital. Minimum difference between current assets and current liabilities, C. Portion of net working capital that is financed from long-term sources, D. Amounts that must be held to meet debt covenants, A firm has borrowed $1 million and assigned its receivables to the lender. Which of the following is not a metric to use for measuring the length of the cash cycle? (B) 49,29,313 = 57,41,813, Question 118. Course Hero is not sponsored or endorsed by any college or university. is also known as working capital ratio. Working capital refers to the capital or cash reserves of a business that is utilized to conduct its day-to-day operations. (A) Liquidity, Question 39. Most major new projects, such as an expansion in production or into new markets, require an upfront investment. (A) Increase in manufacturing cycle [1 Year =360 days] What is the loan outstanding after the first quarterly repayment? Statement II: (Assume a 360 days year.) Answer: (C) 7.76 (D) Working capital turnover ratio TAFE NSW, Sample-GTE -for Student Visa applying on Australia, SITXCOM005 Manage conflict Learner Assessment Pack, CHCCOM003 Develop workplace communication strategies - Final assessment, Chapter 02 - The Helping Relationship and the Values That Drive It, Week 2 - Attitudes, stereotyping and predjucie, 14449906 Andrew Assessment 2B Written reflection. Answer: Annual credit sales Cash sales Debtors Bills receivable Finished goods Collection Period = ? (A) lower return and risk. It's a commonly used measurement to gauge the short-term health of an organization. Select the correct answer from the options given below. Answer: For example, say a company has $100,000 of current assets and $30,000 of current liabilities. (B) 2 (two), Question 51. Answer: Understanding Coca-Cola's Capital Structure (KO). Answer: (A) Trade-off between profitability and risk. If your answer is no, then youve come to the right place. The CTC Ltd. is attempting to establish a current assets policy. (C) mode of overdraft, cash credit, public deposits etc. (C) Long term funds the amount of working capital that exceeds the regular working capital; reserve working capital is there for unexpected business expenses (like implementing a, the amount of capital invested in current assets. (D) All of the above (A) 47 days circulating capital other term for working capital working capital management decisions relating to working capital and short term financing working capital deficit x Purchase = 20,20,000 (C) 18,00,000 (A) 20,00,000 (D) Sell fixed assets to reduce accounts payable 1,20,000 + Purchases 1,80,000 = 3,60,000 Therefore, it is clear from the above explanation that Option A, Option C, and Option D are not accurate, and hence, Option B is the most suitable choice. (A) 50,000 drums All of the following statements are true regarding ratios that measure a companys ability to pay current liabilities except (A) 29 days & 39 days (C) 10,000 In mergers or very fast-paced companies, agreements can be missed or invoices can be processed incorrectly. (B) Net working capital (D) Cost of Sales In fact, there are several kinds of working capital that a small business owner should know about, including: If youre still not entirely clear on what the differences are between permanent and temporary working capital, keep reading. Its current liability are 1,60,000 which includes provision for tax 60,000. Creditors velocity = 2 months. Calculate maximum permissible bank finance by Third Method of Tandon Committee norms. Which of the following is relevant while planning for working capital requirement? Question 149. (A) supplies the funds necessary to meet the current working expenses. (D) None of these (A) Temporary (C) 3,30,367 Answer: (D) All of the above. Question 64. Answer: Finished goods stock = 200 units (C) the average number of days it takes to collect an account. (D) Both ratios are expressed in number of times receivables are collected per year Calculate closing stock of WIP. (D) 19,800 (D) Any of the above Side note: If you see your working capital finance is starting to take a dip, consider taking a permanent working capital loan. Current Ratio vs. Quick Ratio: What's the Difference? (A) 54 days Stock velocity = 6 month (C) (i) & (ii) Question 53. Method 2: 75% of Current Assets Current Liabilities = (0.75 1,09,05,750) 32,50,000 Yes, it is bad if a company's current liabilities balance exceeds its current asset balance. (D) Credit period, Question 69. Wages are paid as follows: (C) 19,215 (A) 1,09,05,750 (C) 3,76,000 (B) Cost of Production, Question 90. Answer: Negative working capital is an indicator of poor short-term health, low liquidity, and potential problems paying its debt obligations as they become due. (A) Working capital turnover ratio Debt Service Coverage Ratio: What is DSCR and How is It Calculated? (B) 61 days WC(working capital) implies the income or money which will be required to fulfill the firms or companys present obligations or STO(short-term obligations). As the result, net working capital indicates the financing needs of a firm, both through long-term and short-term financing sources. (B) Core current assets, Question 43. Creditors 17,55,000 (A) Company has poor credit policy (B) 15,66,667 Answer: (C) III Debtors collection period = ? (D) 70 days What will be the amount of maximum permissible bank finance as per first method of Tandon Committee Norms? (D) In most industries, a current ratio of 2.0 is considered adequate. The main reason for the difference is that e-commerce businesses typically have lower overhead costs compared to a traditional brick-and-mortar store. \(2.8=\frac{28,00,000}{x}\) (B) 30 days This reduces immediate cash flow. For example, imagine a company whose current assets are 100% in accounts receivable. Where current assets refer to the sum of cash, accounts receivable, raw material and finished goods inventory. (A) Differential working capital Let the creditors payment period be x. 3,18,75,000 = 0.75 (x 70,00,000) Answer: (C) 1.22 Question 148. (C) 4,80,000 Instead of Annual Factory Cost WIP Conversion Period can be calculated taking . as base. The company produces cement in200 kg drum. (A) 19.71% (D), Question 20. Permanent working capital has the following characteristics: (a) It is classified on the basis of the time factor; (b) It constantly changes from one asset to another and continues to remain in the business process; . (D) the company currently is able to meet its short-term liabilities Say a company has accumulated $1 million in cash due to its previous years retained earnings. Level of activity 1.56,000 units High working capital isnt always a good thing. Answer: III. (D) 14.44 Here are some other guides to help you measure your businesss financial health: The first thing youll want to do is calculate your businesss net working capital for each day. (C) The current ratio includes physical capital and quick ratio does not. Variable manufacturing overheads = 2 Fixed manufacturing overheads = 1 Lag in payment of overheads = one month (D) 16,66,667. of operating cycle in a year = 4.5 (D) 5,20,000, Question 125. Current assets = ? Answer: In deciding the appropriate level of current assets for the firm, management is confronted with a trade-off between profitability and risk. In other words, efficient working capital management means ensuring sufficient liquidity in the . What happens to a firm whose uses of cash exceed its sources of cash during an accounting period? M.F.M. (A) Acid test days (C) Coverage ratio (B) Identify the level of inventory which allows for uninterrupted production. (C) 12,89,625 (A) inventory and receivables (A) 136.25 The term working capital management refers to the efforts of the management towards the effective management of current assets and current liabilities. Inventory balance will increase before the peak . A firm's permanent working capital refers to the: A. difference between fixed assets and current assets. (A) 18,000 When a working capital calculation is negative, this means the company's current assets are not enough to pay for all of its current liabilities. Working Capital is the amount of funds necessary to cover the cost of operating the enterprises. Current Ratio 2.8 (C) 52,29,813 Answer: (C) 29 days (B) 3,66,333 How much outstanding wages will appear in working capital statement? A working capital ratio of less than one means a company isn't generating enough cash to pay down the debts due in the coming year. The interest rate is 10% on all debts. The size of fixed working capital is proportional to the magnitude and growth of the business. (A) Current ratio, Question 77. (C) There will be no change in working capital Question 139. the minimum amount of working capital needed to maintain a cashflow; enough money to purchase materials, produce inventory, turn that inventory into profits, use those profits to purchase more materials, and so on. Current assets of the company are Answer: Opening and closing stock of SVK Ltd. is 1,20,000 & 1,80,000 respectively. (A) Borrow short term to finance additional fixed assets. (C) 25 days & 35 days This means the company has $70,000 at its disposal in the short term if it needs to raise money for a specific reason. Inventory is at-risk of obsolesce or theft. $510,000 OB. To carry on a business, a certain minimum level of working capital is necessary on a continuous and uninterrupted basis. (D) Profitability ratio, Question 80. (C) 31,250 (D) Increase in accounts payable days. Capital which is needed to meet the seasonal requirements of the business Current Ratio = \(\frac{x}{y}\) Answer: (B) 24.00% (A) Depreciation (A) supplies the funds necessary to meet the current working expenses ie. Long terms loans are 5,58,80,450. (C) 200 Raw material conversion period, Question 92. Rate of gross profit is 20%. Opening and closing balance of creditors are 2,00,000 & 2,40,000 respectively. (D) positive and negative (B) 11,667 (D) A new personal computer for the office, Question 56. (B) Sales Select the correct answer from the options given below. Equity share capital 18,00,000 (C) 18,00,000 Answer: Working Capital Management Explained: How It Works, Current Ratio Explained With Formula and Examples. (B) Accounts receivable days 1 year = 360 days. 9,90,000 + x 10,10,000 = 20,00,000 (B) Core current assets less core current liabilities (A) 1,17,00,000 With the power of technology, Become is revolutionizing the business lending process, making it faster and easier than ever to get matched with the optimal lender. (D) All of the above (B) 69,65,625 A conservative policy means (B) Cash sales, Question 74. A company can improve its working capital by increasing its current assets. Question and Answer forum for K12 Students. (A) 28,00,000 On the other hand, if the radio, window, or A/C stops working, the car will still do its job. Three alternative current assets policies are under consideration 40%, 50% and 60% of projected sales. Creditors Payment Period, Question 99. 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