Business Essays

20948 Words Jun 15th, 2014 84 Pages
Chapter 14
Working Capital and Current Assets Management
 LearningGoals
1. 2. 3. 4. 5. 6. Understand short-term financial management, net working capital, and the related tradeoff between profitability and risk. Describe the cash conversion cycle, its funding requirements, and the key strategies for managing it. Discuss inventory management: differing views, common techniques, and international concerns. Explain the credit selection process and the quantitative procedure for evaluating changes in credit standards. Review the procedures for quantitatively considering cash discount changes, other aspects of credit terms, and credit monitoring. Understand the management of receipts and disbursements, including floats, speeding
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Answer: TRUE Level of Difficulty: 1 Learning Goal: 1 Topic: Working Capital Management

6.

The more predictable its cash inflows, the more net working capital a firm needs. Answer: FALSE Level of Difficulty: 1 Learning Goal: 1 Topic: Working Capital Management

7.

As the ratio of current assets to total assets increases, the firm’s risk increases. Answer: FALSE Level of Difficulty: 2 Learning Goal: 1 Topic: Working Capital Management

8.

Because firms are unable to match cash inflows to outflows with certainty, most of them need current liabilities that more than cover outflows for current assets. Answer: FALSE Level of Difficulty: 2 Learning Goal: 1 Topic: Working Capital Management

9.

Too much investment in current assets reduces profitability, whereas too little investment increases the risk of not being able to pay debts as they come due. Answer: TRUE Level of Difficulty: 2 Learning Goal: 1 Topic: Tradeoff Between Profitability and Risk

Chapter 14 Working Capital and Current Assets Management 46

10.

Too little current liability financing reduces profitability, whereas too much of this financing increases the risk of not being able to pay debts as they come due. Answer: TRUE Level of Difficulty: 2 Learning Goal: 1 Topic: Tradeoff Between Profitability and Risk

11.

Business risk is the risk of being unable to make the scheduled fixed payments associated with debt, leases, and

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