Short-Term Financial Management Exam I – Working Capital, Liquidity and Cash Management
Study Guide
Working Capital Accounts? - ANS ✔✔1) Short-term operating assets 2) Short-term operating
liabilities
3) Short-term financial assets
Short-term operating assets include? - ANS ✔✔Accounts Receivables and Inventory
Short-term operating liabilities include? - ANS ✔✔Accounts payable and Accruals
Short-term financial assets include? - ANS ✔✔Cash and Equivalents
Define Cash Conversion Cycle? - ANS ✔✔Number of days it takes to move funds from inventory
to receivables and from receivables to cash, after accounting for the payables period.
What does CCC measure & how? - ANS ✔✔Firm's liquidity
Shorter CCC implies it takes less time to generate cash, indicating improved liquidity
Firms with longer CCC's wait longer to receive cash inflows
How do you evaluate short-term cash flows? - ANS ✔✔Present Value
Explain Short-Term Financial Planning? Higher forecasted revenues implies? - ANS ✔✔Amount
of working capital caries with revenues
, Implies
1) Increase Receivables due to increased extension of trade credit
2) Increase Inventory to accommodate sales
3) Increase Payables due to increased inventory & receivables
What should managers plan for with higher forecasted revenues with short-term financial
planning? - ANS ✔✔Incremental external financing to support increased inventory and
receivables
Define Sustainable Growth Rate - ANS ✔✔Maximum growth in revenues achievable without a
change to the overall financial policy
Explain Cash Conversion Cycle - ANS ✔✔CCC is the time between when cash is received versus
paid. The CCC approximates the length of time the firm must arrange for non-spontaneous
financing to fund daily operations. The firm is a system of cash flows. These cash flows are
synchronized and uncertain.
What does a shorter cash conversion period mean? - ANS ✔✔The more efficient the firm's
working capital.
Define Operating Cycle - ANS ✔✔The total time from buying and selling inventory to getting
paid from selling that inventory:
Days Inventory Held (DIH) - The time between receipt of inventory and the sale.
Days Sales Outstanding (DSO) - The time between the sale of the inventory and receipt of
payment.
Operating Cycle=DIH+DSO
Study Guide
Working Capital Accounts? - ANS ✔✔1) Short-term operating assets 2) Short-term operating
liabilities
3) Short-term financial assets
Short-term operating assets include? - ANS ✔✔Accounts Receivables and Inventory
Short-term operating liabilities include? - ANS ✔✔Accounts payable and Accruals
Short-term financial assets include? - ANS ✔✔Cash and Equivalents
Define Cash Conversion Cycle? - ANS ✔✔Number of days it takes to move funds from inventory
to receivables and from receivables to cash, after accounting for the payables period.
What does CCC measure & how? - ANS ✔✔Firm's liquidity
Shorter CCC implies it takes less time to generate cash, indicating improved liquidity
Firms with longer CCC's wait longer to receive cash inflows
How do you evaluate short-term cash flows? - ANS ✔✔Present Value
Explain Short-Term Financial Planning? Higher forecasted revenues implies? - ANS ✔✔Amount
of working capital caries with revenues
, Implies
1) Increase Receivables due to increased extension of trade credit
2) Increase Inventory to accommodate sales
3) Increase Payables due to increased inventory & receivables
What should managers plan for with higher forecasted revenues with short-term financial
planning? - ANS ✔✔Incremental external financing to support increased inventory and
receivables
Define Sustainable Growth Rate - ANS ✔✔Maximum growth in revenues achievable without a
change to the overall financial policy
Explain Cash Conversion Cycle - ANS ✔✔CCC is the time between when cash is received versus
paid. The CCC approximates the length of time the firm must arrange for non-spontaneous
financing to fund daily operations. The firm is a system of cash flows. These cash flows are
synchronized and uncertain.
What does a shorter cash conversion period mean? - ANS ✔✔The more efficient the firm's
working capital.
Define Operating Cycle - ANS ✔✔The total time from buying and selling inventory to getting
paid from selling that inventory:
Days Inventory Held (DIH) - The time between receipt of inventory and the sale.
Days Sales Outstanding (DSO) - The time between the sale of the inventory and receipt of
payment.
Operating Cycle=DIH+DSO
