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Working Capital Concepts Quiz

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Questions and Answers

What is the primary way in which working capital impacts a firm?

By influencing the stock price

By affecting its free cash flow (correct)

By increasing long-term debt

By changing the tax rate

Which type of cash conversion cycle would firms generally NOT prefer?

Fluctuating cash conversion cycle

Positive cash conversion cycle

Negative cash conversion cycle (correct)

Neutral cash conversion cycle

In working capital management, what does it involve?

Managing the firm's equity investments

Managing only the firm's assets

Managing all of a firm's assets and liabilities (correct)

Managing only the firm's liabilities

What does a firm's cash cycle represent?

The time it takes to collect accounts receivable Signup and view all the answers

Which factor is NOT directly impacted by effective working capital management?

Profits earned in a financial year Signup and view all the answers

What does a firm's operating cycle represent?

The time between purchasing inventory and selling the product produced Signup and view all the answers

Which firm's operations would likely require the most cash on a daily basis?

An aircraft manufacturer with large inventory and long development cycles Signup and view all the answers

What is the difference between a firm's operating cycle and its cash cycle?

Accounts payable days Signup and view all the answers

Which formula accurately defines the cash conversion cycle (CCC)?

Inventory Days + Accounts Receivable Days - Accounts Payable Days Signup and view all the answers

What is the operating cycle of a firm primarily concerned with?

Inventory management efficiency Signup and view all the answers

In the context of a firm's daily operations, what role does the cash cycle play?

Manages the inflow and outflow of cash for operational needs Signup and view all the answers

Which factor does not directly influence a firm's need for daily cash?

Investment in long-term stocks Signup and view all the answers