Working Capital Cycle Quiz
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Questions and Answers

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?

  • 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?

  • 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.

    <p>True</p> Signup and view all the answers

    A shorter working capital cycle indicates that a company is taking longer to turn its inventory into cash.

    <p>False</p> Signup and view all the answers

    The working capital cycle does not take into account the time it takes for a company to pay its suppliers.

    <p>False</p> Signup and view all the answers

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