Working Capital

WORKING CAPITALQ1. Which of the following is the primary most objective of functional smashing? (MCQ)The difference surrounded by electric authorized assets & current liabilitiesA balance of having tranquil assets to ensure the opeproportionn is unmoved(p)Management of individual operatives detonating device componentsWorking large(p) abstract utilise ratios(2 marks)Q2. Calcu new the present-day(prenominal) balance & officious proportion using the below information. (MCQ)$000Inventory 200Receiv satisfactorys 670Payables 235Bank loan 85Current dimension 0.37, fastly Ratio 0.27Current Ratio 0.58, Quick Ratio 0.31Current Ratio 1.76, Quick Ratio 1.54Current Ratio 2.71, Quick Ratio 2.09(2 marks)Q3. Pick Co. sold 20% of its catalogue on reference book for 10% profit. What leave be the effect on the quick ratio & current ratio after the inventorying sale, if on the whole else is equal? (MCQ)Current Ratio (Increase), Quick Ratio (Increase)Current Ratio (Increase), Quick Ratio (No change)Current Ratio (No change), Quick Ratio (Increase)Current Ratio (Increase), Quick Ratio (Decrease)(2 marks)Q4. Inkle Co has receivables turnover of 8 times, a payables turnover of 4.5 times and an inventory turnover of 2.25 times. Calculate property operational daily round assuming 365 days in a year? (MCQ)46 Days81 Days127 Days162 Days(2 marks)Q5. Which of the following TWO statements ar correct in relation to workings capital policies for a manufacturing caller-out and a food retail merchant? (MRQ)A manufacturing lodge imparting involve to invest in raw material and declaration in large amounts to be owed to its customersA food retailer will have a large inventory of large receivables balanceA manufacturing conjunction of necessity no accounts receivable indemnityA food retailer will need to consider inventory focusing policy (2 marks)Q6. Mafia Co is a manufacturing confederacy and has the following periods. Periods DaysReceivables entreaty 70Raw material turnover 42Work in progress turnover 14Finished seriouss turnover 42Payables defrayment 495334032258000What is the time it takes to complete a working speech rhythm? (FIB) Days(2 marks)Q7. Which of the following beat out describes the working capital turnover? (MCQ)It measures a companionships ability to replace its working capitalIt measures the working capital support to the revenue enhancementsIt measures the liquidity perplex of the companyIt measures the positivity position of the company (2 marks)Q8. Yolo Co. has the following inventoriesRaw material $600Work in progress $550Finished goods $700Yolo Co has annual purchases of $5,000 with the cost of sales being $2,000. What are the average inventory days for Yolo Co (366 days in a year)? (FIB)23495-317500Days(2 marks)Q9. A company sells toy machine guns in the USA it y primaeval sells 15,000 guns at $60/ all(prenominal). It has to ask for $56,000 from its customers. In how many days will the company rec eive all its payments? (MCQ)10 Days23 Days63 Days98 Days(2 marks)Q10. A delay in payment to the suppliers may result which of the following? (MRQ)Future contracts with the suppliers may be disruptedA discount on late payment will be missedGoodwill in the market will be summationdAn append in the price of products as a compensation (2 marks)Q11. Which of the following is non a typical symptom of overtrading? (MCQ)A significant extend in revenue A bank overdraft reaching its limit A fall in the quick ratio and the current ratio A fall in trade payables days(2 marks)Q12. A company has very mettlesome levels of inventory and high immediate payment balances. This is an indication of? (MCQ)Over-tradingHigh cash operating cycle Over-capitalizationLow working capital cycle (2 marks)Q13. Select whether the following statements are true or false. (HA)An increase in sales revenue should believably to increase the level of working capital invested full-strength FALSEA profitability dec rease is an indication that the trade cycle has been increased TRUE FALSEUnder-capitalization is the rapid increase in sales as compared to the invested finance TRUE FALSE(2 marks)Q14. Match the following ratios in comparison to bring out the over-trading problems. (PD)A significant increase in sales Customers are paying late than their credit period Current liabilities are in excess of Current assets WORKING CAPITAL GROWTH % QUICK RATIO % INCREASE IN RECEIVABLES(2 marks)Q15. Unto Co is an online sales company which has established its task in the prehistorical two years. The CFO has indicated that the company has expanded its business and gained a good market share in these two years but to able to continue further they will need to manage its working capital effectively.Which of the following actions might help overcome Unto Co problems? (MRQ)The shareholders will be asked to inject finance into Unto CoInventory levels should be increased by Unto CoSales of Unto Co should be wi thheld for some timeRetained profits should be invested back in Unto (2 marks)Q16. An investment policy is the amount of working capital investment needed for a limited company. Which of the following statement denoted to a mercenary policy? (MCQ)Company safekeeping a low level of inventory will lead an rather cash operating cycleA lengthy cash operating cycle may lead to high finance costInventory levels receivables should be kept at an optimal levelA short cash operating cycle may lead to speculative business(2 marks)Q17. Kelp Co has kept its inventory levels at the minimum level from the low gear of the business. The business was acquired by a competitor and they continued its operation as per their previous owners. In the last three months, the company is unable to allude the supply demands due to a shortage of inventory. The new owner of Kelp Co is unable to recognize the working capital policy. Select the appropriate working capital policy? (MCQ) Conservative investme nt policyAggressive backing policyAggressive investment policyConservative funding policy(2 marks)Q18. Select the appropriate option. (HA) The efficient management of inventory receivables relates to a bear investment policy TRUE FALSEIf customers pay late to a company this will increase the cash cycle TRUE FALSE(2 marks)Q19. A company needs finance to invest in their assets. Select the appropriate asset in relation to working capital financing policy. (PD)Assets are bought in their respective seasons Assets continue for more than a year Assets present with the company at any given time of the year NON- on-going ASSETS PERMANENT on-going ASSETS FLUCTUATING CURRENT ASSETS(2 marks)Q20. Which statement best reflects a conservative working capital finance policy? (MCQ)More short-term finance is used because its riskinessyMore long finance is used because it improves liquidityMore short-term finance is used to purchase inventoryMore long-run finance is used to pay-off payables(2 marks)Q21. Select the following similarities in an Investment & financing working capital policy. (MRQ)The risk of stock out in the policyThe label used in each policyThe use of assets in the policyThe level of inventory in the policy(2 marks)Q22. Which of the following factors could have an influence in working capital? (MRQ)Company credit policies The future growth prospectThe balance of liquidity & profitabilityThe nature of the companyPayable credit policies of suppliers(2 marks)Q23. Which of the following is a benefit in having a decentralized exchequer department in a company? (MCQ) The duplication of workThe benefit of pot discountingThe low-interest rates applied by the bankThe development of skills of managers (2 marks)WORKING CAPITAL (ANSWERS)Q1. BThe difference between current assets & current liabilities (Definition)A balance of having liquid assets to ensure the operation is unaffected (Objective)Management of individual working capital components (One of the aspect s of WC)Working capital analysis using ratios (One of the aspects of WC)Q2. DCurrent Ratio = 200+670 235+85 = 2.71Quick Ratio = 670 235+85 = 2.09Q3. AThe Quick ratio = IncreaseThe inventory sold on credit, all else being equal receivables (current assets) will increase, so the quick ratio will increase.The Current ratio = IncreaseCurrent assets include Inventory & Receivables. The inventory sold for profit, the receivables increase will be more than the decrease in inventory, the net effect will be the increase in current assets, hence ratio increased.Q4. CReceivable days= (365 8) = 46 daysInventory days = (365 2.25) = 162 daysPayable days = (365 4.5) = 81 daysCash operating cycle = (46 + 162) 81 = 127 daysQ5.A manufacturing company will need to invest in raw material and result large amounts to be owed to its customers (Correct)A food retailer will have large inventory with small receivables balanceA manufacturing company needs careful consideration of accounts receivable pol icyA food retailer will need to consider inventory management policy (Correct)Q6. 119 daysWorking Capital Cycle= (70+42+14+42) 49 = 119Q7. BQ8. 91 daysRaw material days = (600 5,000) 366 = 44 daysWork in progress days = (550 2,000) 366 = 101 daysFinished goods days = (700 2,000) 366 = 128 daysAverage days = (44 + 101 + 128) 3 = 91 daysQ9. BSales = 15,000 60 = 900,000 Receivable days = (56,000 900,000) 365 = 23 daysQ10. Future contracts with the suppliers may be disrupted (Correct)A discount on early payment will be missedGoodwill in the market will be decreasedAn increase in the price of products as a compensation (Correct)Q11. DOvertrading is business trying to do similarly much too quickly with too little long-term capital. The payment period to accounts payable is likely to draw out (not shorten).Q12. COver-capitalization represents an excessive investment by a business in its current assets. In the case inventory & cash balance both relate to current assets of a bus iness.Q13. An increase in sales revenue should likely to increase the level of working capital invested TRUE A profitability decrease is an indication that the trade cycle has been increased TRUE Under-capitalization is the rapid increase in sales as compared to the invested finance TRUEQ14. A significant increase in sales Working capital growth %Customers are paying late than their credit period % Increase in ReceivablesCurrent liabilities are in excess of Current assets Quick RatioQ15. The shareholders will be asked to inject finance into Unto Co (Correct)Inventory levels should be managed efficiently by Unto Co Sales of Unto Co should be lowered not withheld in all for some timeRetained profits should be invested back in Unto (Correct)Q16. BIn a conservative policy, the inventory levels & receivables are kept high resulting longer cash operating cycles leading to a need for finance via overdraft facilities. Overdraft results finance cost.Q17. CThe company kept its inventory leve ls at the minimum having a high risk of stockouts which indicates the Aggressive investment policy was used by Kelp Co.s previous owners.Q18.The efficient management of inventory receivables relates to a moderate investment policy TRUE If customers pay late to a company this will increase the cash cycle TRUEQ19.Assets are bought in their respective seasons FLUCTUATING CURRENT ASSETSAssets continue for more than a year NON-CURRENT ASSETSAssets present with the company at any given time of the year PERMANENT CURRENT ASSETSQ20. BThe conservative policy finance most fluctuating assets with long-term finance and finances all permanent assets with long-term finance. Resulting low risk eventually up(a) liquidity but decreasing profitability.Q21. The names used in each policy are same only.Q22. All given above are the factors which can influence the working capitalQ23. D