Working Capital and Inventory Management Quiz

A low level of working capital is a positive sign for businesses that require a lot of inventory, such as retailers.

Keeping high levels of inventory is risk-free for a business and does not impact working capital.

Borrowing money using short-term bank loans increases working capital for a business.

The acid test ratio includes inventories in the calculation to evaluate liquidity.

Increasing equity or borrowing more long-term credit are effective ways to improve both working capital and cash flow.

Profitability measures a business's profit in relation to its revenue and inventory levels.

Working capital refers to the ability of a business to pay its long-term debts.

The acid test ratio is another term for the working capital ratio.

If a company's current assets are less than its current liabilities, it indicates good liquidity.

Asset turnover is calculated by dividing Turnover by the sum of Assets at the beginning and end of the year.

Liquidity ratios are used to evaluate a company's ability to meet its short-term obligations.

High inventory turnover implies that goods sell well and remain in stock for a long time.

The balance sheet provides information on a company's profitability over time.

Inventory turnover is calculated as Cost of sales divided by Average inventory.

Managerial accounting helps managers make decisions about cost-cutting and pricing based on historical financial data.

Equity ratio can be evaluated using the formula Equity / Total liabilities.

Debt ratio is calculated as Total liabilities divided by Equity + Liabilities.

Average net assets can be determined using the formula (Assets at the beginning of the year + Assets at the end of the year) / 2.