40 Lecture - . Cash management & working capital financing

  1. Home
  2. Courses
  3. Financial Management
  4. 40 Lecture

40 Lecture

MGT201

Midterm & Final Term Short Notes

. Cash management & working capital financing

Cash management and working capital financing are essential components of effective working capital management. Cash management involves monitoring and optimizing a company's cash flows, while working capital financing involves obtaining financi


Important Mcq's
Midterm & Finalterm Prepration
Past papers included

Download PDF

  1. What is cash management? a) Management of long-term investments b) Management of short-term assets c) Management of employee salaries d) Management of capital expenditure Answer: b) Management of short-term assets

  2. What is the primary goal of cash management? a) To maximize profitability b) To minimize expenses c) To optimize cash flow d) To reduce debt Answer: c) To optimize cash flow

  3. What is working capital financing? a) Financing for long-term assets b) Financing for short-term assets c) Financing for employee salaries d) Financing for marketing expenses Answer: b) Financing for short-term assets

  4. Which of the following is an example of a short-term financing option for working capital? a) Equity financing b) Bonds c) Trade credit d) Venture capital Answer: c) Trade credit

  5. What is the cash conversion cycle? a) The time it takes to sell inventory b) The time it takes to collect accounts receivable c) The time it takes to pay accounts payable d) All of the above Answer: d) All of the above

  6. What is the purpose of a cash budget? a) To project cash inflows and outflows b) To track inventory levels c) To calculate employee salaries d) To forecast long-term investments Answer: a) To project cash inflows and outflows

  7. Which of the following is a common tool for managing cash flow? a) Accounts receivable aging report b) Balance sheet c) Income statement d) Cash flow statement Answer: d) Cash flow statement

  8. What is the role of a line of credit in working capital financing? a) To provide long-term financing b) To provide short-term financing c) To fund capital investments d) To finance mergers and acquisitions Answer: b) To provide short-term financing

  9. Which of the following is an example of an operating expense? a) Interest on a loan b) Payment for raw materials c) Purchase of long-term assets d) Investment in a new business venture Answer: b) Payment for raw materials

  10. Which of the following is a benefit of effective cash management? a) Reduced profitability b) Increased expenses c) Improved liquidity d) Increased debt Answer: c) Improved liquidity



Subjective Short Notes
Midterm & Finalterm Prepration
Past papers included

Download PDF

  1. What is the difference between cash management and working capital financing? Answer: Cash management involves managing a company's cash inflows and outflows to optimize cash flow, while working capital financing involves obtaining financing to support short-term operational needs.

  2. What are the primary sources of short-term financing for working capital? Answer: The primary sources of short-term financing for working capital are trade credit, bank loans, lines of credit, and factoring.

  3. Why is cash flow forecasting important in cash management? Answer: Cash flow forecasting helps businesses anticipate future cash inflows and outflows, allowing them to make informed decisions about cash management and working capital financing.

  4. What is the purpose of a cash budget? Answer: A cash budget is a tool used in cash management to project cash inflows and outflows for a specified period, allowing businesses to plan their cash needs and avoid cash shortages.

  5. What is the cash conversion cycle, and why is it important in working capital management? Answer: The cash conversion cycle is the time it takes for a company to convert its inventory and accounts receivable into cash. It is an important metric in working capital management as it helps businesses determine how long it takes to generate cash from their assets.

  6. How does a line of credit work in working capital financing? Answer: A line of credit is a pre-approved loan amount that a business can draw from as needed to support short-term cash flow needs. Interest is only charged on the amount of credit used, making it a flexible and cost-effective option for working capital financing.

  7. What are some common techniques used in cash management to optimize cash flow? Answer: Some common techniques used in cash management include accelerating collections of accounts receivable, negotiating favorable payment terms with suppliers, and reducing inventory levels.

  8. What is the role of factoring in working capital financing? Answer: Factoring is a financing technique where a business sells its accounts receivable to a factoring company at a discount in exchange for immediate cash. It can be a useful option for businesses with slow-paying customers or limited access to traditional financing.

  9. What is the difference between operating expenses and capital expenses? Answer: Operating expenses are expenses related to a company's day-to-day operations, while capital expenses are expenses related to long-term investments in assets such as property, plant, and equipment.

  10. How can businesses use financial ratio analysis to improve cash management and working capital financing? Answer: Financial ratio analysis can help businesses identify areas where they can improve cash management and working capital financing, such as by improving inventory turnover or reducing accounts payable days.

Cash management and working capital financing are critical aspects of financial management for any business. Cash management involves managing a company's cash inflows and outflows to optimize cash flow, ensuring that there is enough cash available to meet short-term operational needs. This includes forecasting future cash flows, managing accounts payable and receivable, and using financial tools such as lines of credit and factoring to obtain short-term financing when needed. Working capital financing, on the other hand, involves obtaining financing to support short-term operational needs, such as financing inventory purchases or funding accounts receivable. This can be done through a variety of sources, including trade credit, bank loans, lines of credit, and factoring. Choosing the right financing option depends on factors such as interest rates, repayment terms, and the business's creditworthiness. Effective cash management and working capital financing can have significant benefits for businesses, including improved liquidity, reduced interest costs, and increased profitability. However, poor cash management and working capital financing can lead to cash shortages, missed opportunities, and even bankruptcy. Therefore, businesses need to develop effective strategies for cash management and working capital financing, such as implementing cash flow forecasting, optimizing inventory levels, and negotiating favorable payment terms with suppliers. By doing so, businesses can ensure they have the cash they need to meet short-term obligations, invest in growth opportunities, and achieve long-term success.

Course Lectures