Working Capital Management Objective Questions Answers for Practice

76. What is the primary goal of working capital financing?

1. To minimize the cost of financing
2. To maximize the availability of funds
3. To minimize the risk of insolvency
4. All of the above

77. What is permanent working capital?

1. The minimum level of working capital that a company needs to operate
2. The working capital that fluctuates with the level of sales
3. The working capital that is financed with long-term debt
4. The working capital that is financed with equity

78. What is temporary working capital?

1. The minimum level of working capital that a company needs to operate
2. The working capital that fluctuates with the level of sales
3. The working capital that is financed with long-term debt
4. The working capital that is financed with equity

79. What is the primary risk associated with insufficient working capital?

1. Loss of profitability
2. Inability to meet short-term obligations
3. Increased risk of bankruptcy
4. Decreased market share

80. What is the matching principle?

1. Matching revenues with the expenses incurred to generate those revenues
2. Matching assets with liabilities
3. Matching current assets with current liabilities
4. Matching long-term assets with long-term liabilities

81. How does the matching principle relate to working capital management?

1. It guides the financing of temporary working capital with short-term sources of funds
2. It guides the financing of permanent working capital with long-term sources of funds
3. It guides the valuation of inventory
4. It guides the determination of credit terms

82. What is the current ratio?

1. Current assets / Current liabilities
2. Current liabilities / Current assets
3. Total assets / Total liabilities
4. Total liabilities / Total assets

83. What does the current ratio measure?

1. A company's ability to meet its short-term obligations
2. A company's profitability
3. A company's liquidity
4. A company's solvency

84. What is the quick ratio (acid-test ratio)?

1. (Current assets - Inventory) / Current liabilities
2. (Current assets - Accounts receivable) / Current liabilities
3. (Current assets - Cash) / Current liabilities
4. (Current liabilities - Current assets) / Current liabilities

85. What does the quick ratio measure?

1. A company's ability to meet its short-term obligations without relying on the sale of inventory
2. A company's profitability
3. A company's liquidity
4. A company's solvency

86. What is the inventory turnover ratio?

1. Cost of goods sold / Average inventory
2. Sales / Average inventory
3. Average inventory / Cost of goods sold
4. Average inventory / Sales

87. What does the inventory turnover ratio measure?

1. How efficiently a company manages its inventory
2. How quickly a company sells its inventory
3. How much inventory a company has on hand
4. How much inventory a company needs to meet demand

88. What is the days' sales in inventory?

1. 365 days / Inventory turnover ratio
2. 365 days x Inventory turnover ratio
3. Inventory / Cost of goods sold
4. Cost of goods sold / Inventory

89. What does the days' sales in inventory measure?

1. The average number of days it takes a company to sell its inventory
2. The average number of days it takes a company to collect its accounts receivable
3. The average number of days it takes a company to pay its accounts payable
4. The average number of days it takes a company to produce a product

90. What is the most liquid asset?

1. Inventory
2. Accounts receivable
3. Cash
4. Property, plant, and equipment