39 Lecture
MGT201
Midterm & Final Term Short Notes
Working capital management
Working capital management refers to the process of managing a company's short-term assets and liabilities to ensure that it has enough cash flow to meet its financial obligations. It involves managing inventory, accounts receivable, accounts pa
Important Mcq's
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- What is working capital management? a. Managing long-term assets and liabilities b. Managing short-term assets and liabilities c. Managing capital structure d. Managing cash flows
Answer: b. Managing short-term assets and liabilities
- What are the components of working capital? a. Fixed assets and equity b. Accounts receivable and accounts payable c. Long-term debt and preferred stock d. Retained earnings and common stock
Answer: b. Accounts receivable and accounts payable
- What is the primary objective of working capital management? a. Maximizing shareholder value b. Maximizing profits c. Maintaining liquidity d. Increasing debt capacity
Answer: c. Maintaining liquidity
- What is the cash conversion cycle? a. The time it takes to collect accounts receivable b. The time it takes to pay accounts payable c. The time it takes to convert inventory into cash d. All of the above
Answer: d. All of the above
- What is the optimal level of working capital? a. As high as possible b. As low as possible c. Equal to zero d. None of the above
Answer: d. None of the above
- What is the trade-off between profitability and liquidity in working capital management? a. The higher the profitability, the higher the liquidity b. The higher the liquidity, the lower the profitability c. The higher the profitability, the lower the liquidity d. There is no trade-off between profitability and liquidity
Answer: b. The higher the liquidity, the lower the profitability
- What is accounts receivable turnover? a. The number of days it takes to collect accounts receivable b. The ratio of sales to accounts receivable c. The ratio of accounts receivable to total assets d. The ratio of accounts receivable to accounts payable
Answer: b. The ratio of sales to accounts receivable
- What is the inventory turnover ratio? a. The number of days it takes to sell inventory b. The ratio of sales to inventory c. The ratio of inventory to total assets d. The ratio of inventory to accounts payable
Answer: b. The ratio of sales to inventory
- What is the cash budget? a. A forecast of expected cash inflows and outflows b. A report of actual cash inflows and outflows c. A plan to reduce cash balances d. A statement of cash flows
Answer: a. A forecast of expected cash inflows and outflows
- What is the role of a working capital manager? a. To manage long-term investments b. To manage short-term investments c. To manage capital structure d. To manage financing decisions
Answer: b. To manage short-term investments
Subjective Short Notes
Midterm & Finalterm Prepration
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What is working capital management? Working capital management is the process of managing a company's short-term assets and liabilities to ensure that it has sufficient cash flow to meet its operational needs.
What are the components of working capital? The components of working capital are current assets, which include cash, accounts receivable, inventory, and other short-term assets, and current liabilities, which include accounts payable, accrued expenses, and other short-term liabilities.
Why is working capital management important? Working capital management is important because it helps ensure that a company can meet its short-term financial obligations and operate efficiently.
What are some strategies for managing working capital? Strategies for managing working capital include improving cash flow, reducing inventory levels, accelerating accounts receivable collections, and negotiating more favorable payment terms with suppliers.
How does working capital management affect a company's profitability? Effective working capital management can improve a company's profitability by reducing the cost of financing short-term assets and liabilities and increasing operational efficiency.
What are the risks of poor working capital management? Poor working capital management can lead to cash flow problems, missed payment deadlines, and increased financing costs. It can also affect a company's credit rating and ability to obtain financing.
What are some tools used in working capital management? Tools used in working capital management include cash flow forecasting, inventory management software, accounts receivable and payable software, and financial ratio analysis.
How can a company optimize its working capital management? A company can optimize its working capital management by setting clear goals, improving its cash conversion cycle, implementing effective inventory management, and using technology to streamline its financial processes.
How does the size of a company affect its working capital management needs? The size of a company can affect its working capital management needs because larger companies generally have more complex operations and larger cash flows, which require more sophisticated working capital management strategies.
What role does a company's industry play in its working capital management? The industry a company operates in can affect its working capital management needs and strategies because different industries have different cash flow patterns and financial risks. For example, a manufacturing company may have higher inventory levels than a service-based company, which can affect its working capital needs.