Working Capital Management

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What is the trade-off that companies face when determining the appropriate level of working capital?

Between risk and return

Between long-term and short-term investments

Between equity and debt

Between liquidity and profitability (correct)

What is the primary reason why companies invest in accounts receivable?

To maintain a high current ratio

To offer credit to customers and increase sales (correct)

To reduce accounts payable

To finance long-term investments

Which of the following is a component of working capital that managers and financial analysts usually focus on?

Intangible Assets

Long-term Investments

Property, Plant and Equipment

Accounts Payable (correct)

What is the term used to describe the amount of time it takes to sell inventory, collect accounts receivable, and pay accounts payable?

Cash Conversion Cycle Signup and view all the answers

What is the primary purpose of accounts receivable?

To collect cash from customers Signup and view all the answers

What is the concept that defines an asset as a right that has the potential to produce economic benefits?

Conceptual Framework Signup and view all the answers

What is the primary characteristic of the FIFO cost method?

The first costs into inventory are the first costs assigned to cost of sales. Signup and view all the answers

Under the LIFO cost method, which costs are assigned to cost of sales?

The latest costs into inventory. Signup and view all the answers

What is the value of the ending inventory using the FIFO cost method?

$1,058.00 Signup and view all the answers

What is the total cost of sales using the FIFO cost method?

$6,763.00 Signup and view all the answers

What is the primary difference between the FIFO and LIFO cost methods?

The FIFO method values ending inventory based on the latest costs, while the LIFO method values ending inventory based on the oldest costs. Signup and view all the answers

What is the purpose of the FIFO and LIFO cost methods?

To value inventory and calculate cost of sales. Signup and view all the answers

In a period of rising prices, which inventory cost method would result in the highest Cost of Goods Sold (COGS)?

FIFO Signup and view all the answers

What is the primary purpose of the current ratio in financial analysis?

To assess a company's short-term liquidity Signup and view all the answers

In a period of falling prices, which inventory cost method would result in the lowest Ending Inventory (EI)?

FIFO Signup and view all the answers

What is the main benefit of accounting information in decision making?

To provide information for decision making Signup and view all the answers

What is the impact of a high current debt on a company's creditworthiness?

It increases the probability of default Signup and view all the answers

Which of the following is NOT a benefit of using the current ratio in financial analysis?

It provides insight into a company's profitability Signup and view all the answers

Working Capital Management

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