M3 Working Capital Metrics

Question 1

difference between current assets and current liabilities

Answer 1

working capital

Question 2

Current Ratio Formula

Answer 2

CA / CL

Question 3

Quick Ratio Formula

Answer 3

Cash and cash equivalents + marketable securities + accounts receivable (net) / CL

Question 4

Cash Conversion Cycle

Answer 4

Days in inventory + days sales in AR - days payables outstanding

Question 5

Operating Cycle

Answer 5

Days in inventory + days sales in AR

Question 6

Inventory Turnover

Answer 6

COGS / Average Inventory

Question 7

Days in Inventory

Answer 7

Ending Inventory / (COGS/365)

Question 8

Accounts Receivable Turnover

Answer 8

Sales (net) / Average AR (net)

Question 9

Days sales in AR

Answer 9

Ending AR (net) / (Sales (net)/365)

Question 10

Accounts Payable Turnover

Answer 10

COGS / Average AP

Question 11

Days of payables outstanding

Answer 11

Ending AP / (COGS/365))

Question 12

Working Capital Turnover

Answer 12

Sales / Average working capital

*Average working capital = beg WC + End WC /2

Question 13

When a firm finances each asset with a financial instrument of the same approximate maturity as the life of the asset it is applying

Answer 13

working capital management

Question 14

Working capital policy is deemed to be more conservative as an increasing portion of an organization’s long term assets, permanent current assets, and temp current assets are funded by

Answer 14

long-term financing

Question 15

The GOAL of working capital management is shareholder wealth maximization. The optimal mix of CA and CL depends on the nature of the business and the industry and requires offsetting the benefit of CA and CL against the probability of ?

Answer 15

Technical Insolvency

Question 16

Best ratio to use for determining liquidity?

Answer 16

Current ratio bc reflects the firm’s ability to generate cash to meet its ST obligations
CA / CL