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Questions and Answers
How is the working capital cycle calculated?
How is the working capital cycle calculated?
- By dividing the average payment period by the average collection period
- By multiplying the average payment period with the average collection period
- By adding the average payment period to the average collection period
- By subtracting the average payment period from the average collection period (correct)
What does the working capital cycle measure?
What does the working capital cycle measure?
- Time between production of goods and their sale
- Time between payment of goods supplied and receipt of cash from their sale (correct)
- Time between receipt of cash and payment for goods supplied
- Time between ordering goods and payment for them
What does a longer working capital cycle indicate about a company's financial health?
What does a longer working capital cycle indicate about a company's financial health?
- It indicates strong financial management practices
- It may indicate inefficiency in managing cash flow (correct)
- It suggests effective control over inventory
- It implies quick turnover of assets
Working capital cycle measures the time between the payment for goods and the receipt of cash from their sale.
Working capital cycle measures the time between the payment for goods and the receipt of cash from their sale.
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A shorter working capital cycle indicates that a company is taking longer to turn its inventory into cash.
A shorter working capital cycle indicates that a company is taking longer to turn its inventory into cash.
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The working capital cycle does not take into account the time it takes for a company to pay its suppliers.
The working capital cycle does not take into account the time it takes for a company to pay its suppliers.
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