P2

Question 1

Working capital

Answer 1

Current asset

Question 2

Comprises assets that are used in the company’s normal operations and replaced all during the year

Answer 2

Working capital

Question 3

Comprises assets that are used in the company’s normal operations and replaced all during the year

Answer 3

Working capital

Question 4

Deducted from working capital

Answer 4

Current assets that are not used in normal operations

Question 5

Working capital includes?

Answer 5

Cash
Accounts receivable
Inventories

Question 6

Formula to get NET WORKING CAPITAL

Answer 6

Current Assets-Current Liabilities

Question 7

Working capital- interest free loans

Answer 7

Net Working Capital

Question 8

Represent the amount of money the company obtain from non-free sources to carry its non-current asset.

Answer 8

Net Working Capital

Question 9

Total amount of interest free loans and accruals are ______ to the net working capital

Answer 9

Deducted

Question 10

When getting bank loan, they considering your?

Answer 10

Status of cash flow

Question 11

Types of current asset investment policies

Answer 11

Relaxed
Restricted
Moderate

Question 12

Illustration of the direct relationship of sales and current assets for every investment policy

Answer 12

Linear
Curvilinear

Question 13

Type of relationship of sales and current asset for every investment policy

Answer 13

Direct

Question 14

The company holds a great deal of cash, receivables, marketable securities and inventories relative to its sales

Answer 14

Relaxed current asset investment policy

Question 15

Holdings of current assets are minimize

Answer 15

Restricted current asset investment policy

Question 16

Between relaxed and restricted policies

Answer 16

Moderate current asset investment policy

Question 17

Relatively large amounts of cash, marketable securities, and inventories are carried

Answer 17

Relaxed current asset investment policy

Question 18

Liberal credit policy result in a high level of receivables

Answer 18

Relaxed

Question 19

Holding current assets are constrained

Answer 19

Restricted

Question 20

Current asset

Answer 20

Cash
Receivables
Marketable securities
Inventories

Question 21

Low level of asset which results in a high ROE, other things held constant

Answer 21

Restricted

Question 22

Formula of ROE

Answer 22

(Net Income÷sales)×(sales÷assets)×(assets÷equity)

Question 23

Current assets can be?

Answer 23

Temporary
Permanent

Question 24

Company maintains even at the low point of the business cycle

Answer 24

Permanent current asset

Question 25

Fluctuate with seasonal or cyclical variations of sales

Answer 25

Temporary current assets

Question 26

Types of current assets financing policies

Answer 26

Moderate approach or maturity matching or self-liquidating approach Aggressive approach Conservative approach

Question 27

Calls for matching asset or liability maturities

Answer 27

Moderate approach Maturity matching Self-liquidating approach

Question 28

Maturity matching

Answer 28

Moderate approach

Question 29

Self-liquidating approach

Answer 29

Moderate approach

Question 30

Finances some if its permanent assets with short-term debt.

Answer 30

Aggressive Approach

Question 31

Mismatching of assets and liablities

Answer 31

Aggressive approach

Question 32

Long-term capital is used to finance all the permanent assets and to meet some of the seasonal needs

Answer 32

Conservative approach

Question 33

Process undertaken by the company to purchase or produced inventory, hold it for a time and then sell it and received cash

Answer 33

Cash conversion cycle or CCC

Question 34

CCC

Answer 34

Cash Conversion Cycle

Question 35

It is the length of time funds are tied up in working capital or the length of time between paying for working capital and collecting cash from the sale of the working capital

Answer 35

CCC

Question 36

Formula to get CCC

Answer 36

CCC= ICP+ACP-PDP

Question 37

Average time required to convert raw materials into finished goods and then to sell them

Answer 37

ICP or Inventory Conversion Period

Question 38

Average length of time required to convert the firm's receivables to cash, that is, to collect cash following a sale

Answer 38

Average Collection Period or ACP

Question 39

Average length of time between the purchase of material and labor and the payment of cash for them

Answer 39

PDP or Payables Deferred Period

Question 40

Formula to get ICP

Answer 40

Inventory ÷ Cost of good sold per day

Question 41

Currency (bills or coins)

Answer 41

Cash

Question 42

More important than currency for most businesses

Answer 42

Bank demand (or checking) deposits

Question 43

Used to pay for labor and raw materials, purchasing fixed assets, paying taxes, servicing debt, paying dividends, and other business transaction

Answer 43

Bank demand (or checking) deposits

Question 44

Do not earn any interest so companies try to minimize amount of deposits while maintaining enough balance to pay the obligations in a timely basis

Answer 44

Bank demand (or checking) deposits

Question 45

Post office box operated by a bank to which payments are sent.

Answer 45

Lockbox

Question 46

Used to speed up effective receipt of cash

Answer 46

Lockbox

Question 47

Short term securities

Answer 47

Cash Equivalents

Question 48

Companies also purchase marketable securities as cash builds up from operations and then sell those securities when they need cash

Answer 48

Cash Equivalents or short term securities

Question 49

Primary forecasting tool used by companies to forecast their cash flows

Answer 49

Cash budget

Question 50

A table shows cash receipts, disbursements and balances over some period

Answer 50

Cash budget

Question 51

A table shows cash receipts, disbursements and balances over some period

Answer 51

Cash budget