Short-term Finance and Working Capital Management
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Questions and Answers

What does an aggressive approach to working capital management prioritize?

  • Liquidity over profitability
  • Stability over risk-taking
  • Growth over sustainability
  • Profitability over liquidity (correct)

    • Why is working capital management important for companies?

  • To manage current assets effectively (correct)
  • To focus on long-term debt reduction
  • To enhance shareholder activism
  • To ensure long-term investments are profitable

    • Which of the following is NOT considered a current asset?

  • Long-term investments (correct)
  • Cash and cash equivalents
  • Accounts receivable
  • Marketable securities

    • What are current liabilities based on?

    <p>Payments due within one year</p> Signup and view all the answers

    How is net working capital calculated?

    <p>(Cash + Other current assets) - Current liabilities</p> Signup and view all the answers

    What does the basic balance sheet identity reveal about cash?

    <p>Cash = Long-term debt + Equity + Current liabilities - Current assets other than cash - Fixed assets</p> Signup and view all the answers

    What is the primary focus of short-term finance?

    <p>Analysis of short-term financial decisions affecting net working capital</p> Signup and view all the answers

    What is the most important difference between short-term and long-term finance?

    <p>The timing of cash flows</p> Signup and view all the answers

    Which of the following is NOT an objective of working capital management?

    <p>Purchasing special machinery</p> Signup and view all the answers

    What is the conflict between profitability and liquidity in working capital management?

    <p>Liquid resources have no return or low levels of return, decreasing profitability</p> Signup and view all the answers

    What approach to working capital management favors liquidity over profitability?

    <p>A conservative approach</p> Signup and view all the answers

    Which of the following statements is true about short-term financial decisions?

    <p>They involve cash inflows and outflows that occur within a year or less</p> Signup and view all the answers

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