Prelim

Question 1

dio formula

Answer 1

ave. inventory/cogs x 365

Question 2

dso formula

Answer 2

Accounts receivable/total sales x 365

Question 3

dpo formula

Answer 3

acxounts payable/cogs x 365

Question 4

ccc formula

Answer 4

=dio + dio - dpo

Question 5

formula of double digits method

Answer 5

2/n

Question 6

measures the ave. number of days the company takes to sell its inventory

Answer 6

days inventory outstanding (dio)

Question 7

measures the ave. number of days it takes for the company to collect payment after a sale

Answer 7

days sales oustanding (dso)

Question 8

measures the ave. number of days the company takes to pay its suppliers

Answer 8

days payable outstanding (dpo)

Question 9

measures the time it takes for a company to convert its inventory into sales and then convert those sales into cash through receivables collection

Answer 9

operating cycle

Question 10

key financial metric that measures the time it takes for a company to convert its investment in inventory and other resources into cash flows from sales

Answer 10

cash conversion cycle

Question 11

refers to the process of managing an organization’s financial resources to ensure that it has enough cash flow to meet its obligations while also maximizing the return on investments and minimizing financial risks

Answer 11

treasury management

Question 12

importance of treasury management

Answer 12

ensuring liquidity
managing financial risks
optimizing returns

Question 13

key responsibilities of treasury managers

Answer 13

cash management
financing and investments
risk monitoring
regulatory compliance

Question 14

objectives of treasury management

Answer 14

liquidity management
risk management
capital management

Question 15

key components of treasury management

Answer 15

cash management
risk management
financial planning

Question 16

basics of cash management

Answer 16

forecasting
collections
disbursements
reconciliation

Question 17

how companies manage cash

Answer 17

banking relationships
investment strategies
digital payment solutions

Question 18

it represents the difference b/w a company’s current assets and current liabilities. It’s a vital metric that reflects a company’s short term liquidity and operational efficiency

Answer 18

net working capital

Question 19

nwc formula

Answer 19

ca-cl

Question 20

current ratio

Answer 20

ca/cl

Question 21

quick ratio

Answer 21

ca-inv/cl

Question 22

strict ratio

Answer 22

ca-ar/cl

Question 23

importance of ccc

Answer 23

liquidity management
operational efficiency
working capital optimization

Question 24

key steps in the cash conversion cycle

Answer 24

purchasing inventory
selling products
collecting cash
paying suppliers

Question 25

monitoring nwc

Answer 25

current ratio quick ratio

Question 26

optimizing networking capital

Answer 26

maximize profitability improve cash flow enhance efficiency maximize risk

Question 27

components of net working capital

Answer 27

current assets accounts receivables inventory current liabilities

Question 28

importance of net working capital

Answer 28

liquidity and solvency operational efficiency growth and expansion financial stability and investor confidence

Question 29

Optimizing net working capital enhances profitability by minimizing unnecessary investments in current assets.

Answer 29

maximize profitability

Question 30

Efficient net working capital management frees up cash for investments and operational expenses

Answer 30

improve cash flow

Question 31

Optimizing working capital processes reduces operational inefficiencies and streamlines workflows.

Answer 31

enhance efficiency

Question 32

Effective net working capital management mitigates financial risks associated with liquidity and cash flow.

Answer 32

minimize risk

Question 33

Adequate net working capital ensures a company can meet its short-term financial obligations, preventing liquidity problems and potential insolvency.

Answer 33

liquidity and solvency

Question 34

Efficient management of working capital optimizes the use of resources, minimizing unnecessary inventory and receivables, leading to improved operational efficiency and profitability.

Answer 34

operational efficiency

Question 35

A healthy net working capital position allows businesses to invest in growth opportunities and expansion plans, as they have sufficient funds to finance new projects.

Answer 35

growth and expansion

Question 36

Strong net working capital signals financial stability and responsible management, attracting investors and lenders, creating a positive reputation and fostering confidence.

Answer 36

financial stability and investor confidence

Question 37

Strong net working capital signals financial stability and responsible management, attracting investors and lenders, creating a positive reputation and fostering confidence.

Answer 37

financial stability and investor confidence

Question 38

it also involves making smart investment decisions with the company's excess cash to earn additional income without taking too much risk

Answer 38

optimizing returns

Question 39

treasury management ensures that the company has enough cash on hand to meet its short-term obligations, such as paying bills, salaries, and suppliers.

Answer 39

ensuring liquidity

Question 40

proactive treasury management helps identify and mitigate financial risks, protecting organization from potential market fluctuations and economic uncertainties

Answer 40

managing financial risks

Question 41

simple techniques to keep cash flow positive

Answer 41

effectice invoicing inventory management cost control working capital optimization

Question 42

timely and accurate invoicing, with clear payment terms and follow up procedures to ensure prompt customer payments

Answer 42

effective invoicing

Question 43

optimizing inventory levels to minimize holding costs and free up cash tied up in excess stock

Answer 43

inventory management

Question 44

closely monitoring and managing operating expenses to identify opportunities for cost savings and efficiency improvements

Answer 44

cost control

Question 45

aligning the timing cash inflows and outflows to maintain a positive cash flow positions and avoid potential liquidity issues

Answer 45

working capital optimization

Question 46

factors affecting nwc

Answer 46

inventory management credit terms cash flow management

Question 47

is the amount of money a business needs to keep on hand to cover its day-to-day operations. This includes cost pf goods sold, operating expenses, and any other ongoing expenses. This can be calculated by adding up all of the company's fixed asset and current liabilities. Also known as the base level of funding

Answer 47

Permanent funding requirement

Question 48

Key characteristics of permanent funding requirement

Answer 48

constant needs long-term stable essential

Question 49

permanent funding is required to cover ongoing operating expenses and fixed assets

Answer 49

constant needs

Question 50

these funds are needed for the entire life of the business and are not expected to fluctuate significantly

Answer 50

long-term

Question 51

permanent funding requirements remain relatively consistent over time

Answer 51

stable

Question 52

without permanent funding, the business could not function and meet its basic needs

Answer 52

essential

Question 53

example of permanent funding needs

Answer 53

workung capital needs growth investments cash flow management

Question 54

is the additional financing needed to meet temporary peaks in demand. These peaks are often driven by seasonal factors like weather or holidays. This is a short term financing need that often arises during specific months of teh year

Answer 54

seasonal funding requirement

Question 55

key characteristics of seasonal funding requirement

Answer 55

fluctuating demand temporary needs predictable pattern

Question 56

seasonal business usually experiences predictable patterns of high and low demand. Understanding these patterns allows for effective planning and budgeting

Answer 56

predictable pattern

Question 57

seasonal funding is temporary and is needed only during periods of peak demand. its used to finance inventory, production, and sales during those specific times.

Answer 57

temporary needs

Question 58

businesses with seasonal demand experience periods of high sales followed by periods of low sales. These fluctuations impact cash flows and working capital needs

Answer 58

fluctuating demands

Question 59

is a necessary component of a business's long-term financial strategy. It represents the consistent financial resources required for ongoing operations

Answer 59

permanent funding

Question 60

is crucial for businesses experiencing fluctuations in demand or production. It addresses the temporary need for extra financial resources during peak seasons.

Answer 60

seasonal funding

Question 61

prioritizes minimizing funding costs. This is achieved by borrowing onlh the exact amount required for short periods. This strategy assumes accurate sales forecasting and efficient inventory management. It requires a high degree of confidence in predicting demand and managing operations

Answer 61

Aggressive seasonal funding strategy

Question 62

characteristics of aggressive seasonal funding strategy

Answer 62

1. Minimal permanent funding 2. high leverage 3. potential for higher returns 4. risk of financial distress

Question 63

this strategy relies heavily on short-term financing to meet seasonal demands

Answer 63

minimal permanent funding

Question 64

businesses take on more debt to finance seasonal operations

Answer 64

high leverage

Question 65

agressive fundibg strategies can lead to higher profitability during peak seasons

Answer 65

potential for higher returns

Question 66

if sales fall short, businesses face challenges in meeting debt obligations

Answer 66

risk of financial distress

Question 67

a less risky approach to financing seasonal need. This strategy involves maintaining a higher level of cash on hand throughout the year. The company avoids potential financial strain but may miss out on opportunities for higher returns on investments

Answer 67

conservative seasonal funding requirement

Question 68

characteristics of conservative seasonal funding strategy

Answer 68

1. Larger cash buffer 2. lower debt levels 3. lower risk 4. stable operations

Question 69

this strategy uses larger cadh buffer to meet peak funding needs. This reduces the need to borrow excessively during peak seasons.

Answer 69

larger cash buffer

Question 70

a conservative approach prioritizes minimizing borrowing, keeping debt levels low, and avoiding excessive interest payments

Answer 70

lower debt levels

Question 71

the lower debt levels associated with this strategy translate to lower financial risk for the business

Answer 71

lower risk

Question 72

consistent cash flow and minimal debt make it easier to maintain stable operations even during seasonal fluctuations

Answer 72

stable operations