Working Capital Metrics (B2:M3)

Question 1

when is a working capital policy deemed to be more conservative?

Answer 1

as an increasing portion of an organization’s LT assets, permanent current assets, and temporary current assets are funded by LT financing

Question 2

what working capital financing policy subjects a firm to the greatest risk of not being able to meet the firm’s maturing obligations?

Answer 2

financing permanent current assets with ST debt

Question 3

contribution margin = ?

Answer 3

sales - variable costs

Question 4

cash conversion cycle formula

Answer 4

days in inventory + days sales in AR - days of payables outstanding

inventory = end in / (COGS/365)

AR = end AR / (sales/365)

payables = end payables / (COGS/365)

Question 5

what is aggressive working capital management?

Answer 5

when current assets are financed with current liabilities

Question 6

equity multipler

Answer 6

total assets / total equity

Question 7

working capital turnover

Answer 7

sales / avg working capital

working capital = current assets - current liabilities

Question 8

are permanent current assets usually financed with ST or LT debt?

Answer 8

LT because ST puts a firm at greater risk of not being able to meet the maturing obligation

Question 9

operating cycle formula

Answer 9

days in inventory + days sales in AR