Chapter 27: Financial Planning and Short-Term Finance

Question 1

cash cycle

Answer 1

operating cycle - accounts payable period

cash cycle increases as the inventory and receivables periods get longer

cash cycle decreases if the company is able to stall payment of payables by lengthening the payables period

+ cash cycle = company may require additional financing

Question 2

flexible short-term financial policy

Answer 2

maintains a high ratio of current assets to sales

Question 3

restrictive short-term financial policy

Answer 3

maintains a low ratio of current assets to sales

Question 4

operating cycle

Answer 4

days in inventory + days in payables