Exam 21: Supply Chains and Working Capital Management

The cash budget and the capital budget are handled separately, and although they are both important, they are developed completely independently of one another.

Whaley & Whaley has the following data. What is the firm's cash conversion cycle? Inventory conversion period = 41days Average collection period = 31days Payables deferral period = 38day

Net working capital, defined as current assets minus the sum of payables and accruals, is equal to the current ratio minus the quick ratio.

A firm's collection policy, i.e., the procedures it follows to collect accounts receivable, plays an important role in keeping its average collection period short, although too strict a collection policy can reduce profits due to lost sales.

Which of the following statements is most consistent with efficient inventory management? The firm has a

Suppose a firm changes its credit policy from 2/10 net 30 to 3/10 net 30. The change is meant to meet competition, so no increase in sales is expected. The average accounts receivable balance will probably decline as a result of this change.

Famous Farm's payables deferral period (PDP) is 50 days (on a 365-day basis), accounts payable are $100 million, and its balance sheet shows inventory of $125 million. What is the inventory turnover ratio?

Short-term marketable securities are held for two separate and distinct purposes: (1) to provide liquidity as a substitute for cash and (2) as a non-operating investment. Marketable securities held while awaiting reinvestment are not available for liquidity purposes.

Net working capital is defined as current assets divided by current liabilities.

Brothers Breads has the following data. What is the firm's cash conversion cycle? Inventory conversion period = 50days Average collection period = 17days Payables deferral period = 25day

Accruals are "free" capital in the sense that no explicit interest must normally be paid on accrued liabilities.