Chapter 6

Question 1

Working capital

Answer 1

Current assets

Question 2

Credit period

Answer 2

The period during which a customer should repay the credit

Question 3

Default of payment

Answer 3

when customers pay too late or don’t pay at all

Question 4

Discount period

Answer 4

a period when customers get a discount for paying early

Question 5

The 4 sources used for creditworthiness assessment

Answer 5

1: Personal visits to the customer
2: Sales representatives
3: Financial statements of the customer
4: Credit reporting agencies

Question 6

Factoring

Answer 6

When a company transfers its approved invoices to a factoring company

Question 7

Days sales outstanding formula

Answer 7

Average sum of outstanding invoices / sales on account x 365 days

Question 8

Transaction motive

Answer 8

Sufficient cash and cash equivalents are kept to allow purchases that guarantee the continuity of the production process (payment of salaries, purchasing raw materials, tax payment etc)

Question 9

Precaution motive

Answer 9

Additional cash and cash equivalents are kept, due to uncertainty concerning the size and time of cash payments and receipts

Question 10

Speculation motive

Answer 10

additional cash and cash equivalents are kept, to benefit from price changes of production factors