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Treasury Management > Prelim > Flashcards

Prelim Flashcards

1
Q

dio formula

A

ave. inventory/cogs x 365

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2
Q

dso formula

A

Accounts receivable/total sales x 365

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3
Q

dpo formula

A

acxounts payable/cogs x 365

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4
Q

ccc formula

A

=dio + dio - dpo

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5
Q

formula of double digits method

A

2/n

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6
Q

measures the ave. number of days the company takes to sell its inventory

A

days inventory outstanding (dio)

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7
Q

measures the ave. number of days it takes for the company to collect payment after a sale

A

days sales oustanding (dso)

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8
Q

measures the ave. number of days the company takes to pay its suppliers

A

days payable outstanding (dpo)

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9
Q

measures the time it takes for a company to convert its inventory into sales and then convert those sales into cash through receivables collection

A

operating cycle

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10
Q

key financial metric that measures the time it takes for a company to convert its investment in inventory and other resources into cash flows from sales

A

cash conversion cycle

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11
Q

refers to the process of managing an organization’s financial resources to ensure that it has enough cash flow to meet its obligations while also maximizing the return on investments and minimizing financial risks

A

treasury management

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12
Q

importance of treasury management

A

ensuring liquidity
managing financial risks
optimizing returns

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13
Q

key responsibilities of treasury managers

A

cash management
financing and investments
risk monitoring
regulatory compliance

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14
Q

objectives of treasury management

A

liquidity management
risk management
capital management

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15
Q

key components of treasury management

A

cash management
risk management
financial planning

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16
Q

basics of cash management

A

forecasting
collections
disbursements
reconciliation

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17
Q

how companies manage cash

A

banking relationships
investment strategies
digital payment solutions

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18
Q

it represents the difference b/w a company’s current assets and current liabilities. It’s a vital metric that reflects a company’s short term liquidity and operational efficiency

A

net working capital

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19
Q

nwc formula

A

ca-cl

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20
Q

current ratio

A

ca/cl

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21
Q

quick ratio

A

ca-inv/cl

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22
Q

strict ratio

A

ca-ar/cl

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23
Q

importance of ccc

A

liquidity management
operational efficiency
working capital optimization

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24
Q

key steps in the cash conversion cycle

A

purchasing inventory
selling products
collecting cash
paying suppliers

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25
Q

monitoring nwc

A

current ratio
quick ratio

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26
Q

optimizing networking capital

A

maximize profitability
improve cash flow
enhance efficiency
maximize risk

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27
Q

components of net working capital

A

current assets
accounts receivables
inventory
current liabilities

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28
Q

importance of net working capital

A

liquidity and solvency
operational efficiency
growth and expansion
financial stability and investor confidence

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29
Q

Optimizing net working capital enhances
profitability by minimizing unnecessary
investments in current assets.

A

maximize profitability

30
Q

Efficient net working capital management frees up cash for investments and operational expenses

A

improve cash flow

31
Q

Optimizing working
capital processes reduces
operational inefficiencies
and streamlines
workflows.

A

enhance efficiency

32
Q

Effective net working
capital management
mitigates financial risks
associated with liquidity
and cash flow.

A

minimize risk

33
Q

Adequate net working capital ensures a
company can meet its short-term
financial obligations, preventing liquidity
problems and potential insolvency.

A

liquidity and solvency

34
Q

Efficient management of working capital
optimizes the use of resources,
minimizing unnecessary inventory and
receivables, leading to improved
operational efficiency and profitability.

A

operational efficiency

35
Q

A healthy net working capital position
allows businesses to invest in growth
opportunities and expansion plans, as
they have sufficient funds to finance new
projects.

A

growth and expansion

36
Q

Strong net working capital signals
financial stability and responsible
management, attracting investors and
lenders, creating a positive reputation
and fostering confidence.

A

financial stability and investor confidence

37
Q

Strong net working capital signals
financial stability and responsible
management, attracting investors and
lenders, creating a positive reputation
and fostering confidence.

A

financial stability and investor confidence

38
Q

it also involves making smart investment decisions with the company’s excess cash to earn additional income without taking too much risk

A

optimizing returns

39
Q

treasury management ensures that the company has enough cash on hand to meet its short-term obligations, such as paying bills, salaries, and suppliers.

A

ensuring liquidity

40
Q

proactive treasury management helps identify and mitigate financial risks, protecting organization from potential market fluctuations and economic uncertainties

A

managing financial risks

41
Q

simple techniques to keep cash flow positive

A

effectice invoicing
inventory management
cost control
working capital optimization

42
Q

timely and accurate invoicing, with clear payment terms and follow up procedures to ensure prompt customer payments

A

effective invoicing

43
Q

optimizing inventory levels to minimize holding costs and free up cash tied up in excess stock

A

inventory management

44
Q

closely monitoring and managing operating expenses to identify opportunities for cost savings and efficiency improvements

A

cost control

45
Q

aligning the timing cash inflows and outflows to maintain a positive cash flow positions and avoid potential liquidity issues

A

working capital optimization

46
Q

factors affecting nwc

A

inventory management
credit terms
cash flow management

47
Q

is the amount of money a business needs to keep on hand to cover its day-to-day operations. This includes cost pf goods sold, operating expenses, and any other ongoing expenses. This can be calculated by adding up all of the company’s fixed asset and current liabilities. Also known as the base level of funding

A

Permanent funding requirement

48
Q

Key characteristics of permanent funding requirement

A

constant needs
long-term
stable
essential

49
Q

permanent funding is required to cover ongoing operating expenses and fixed assets

A

constant needs

50
Q

these funds are needed for the entire life of the business and are not expected to fluctuate significantly

A

long-term

51
Q

permanent funding requirements remain relatively consistent over time

A

stable

52
Q

without permanent funding, the business could not function and meet its basic needs

A

essential

53
Q

example of permanent funding needs

A

workung capital needs
growth investments
cash flow management

54
Q

is the additional financing needed to meet temporary peaks in demand. These peaks are often driven by seasonal factors like weather or holidays. This is a short term financing need that often arises during specific months of teh year

A

seasonal funding requirement

55
Q

key characteristics of seasonal funding requirement

A

fluctuating demand
temporary needs
predictable pattern

56
Q

seasonal business usually experiences predictable patterns of high and low demand. Understanding these patterns allows for effective planning and budgeting

A

predictable pattern

57
Q

seasonal funding is temporary and is needed only during periods of peak demand. its used to finance inventory, production, and sales during those specific times.

A

temporary needs

58
Q

businesses with seasonal demand experience periods of high sales followed by periods of low sales. These fluctuations impact cash flows and working capital needs

A

fluctuating demands

59
Q

is a necessary component of a business’s long-term financial strategy. It represents the consistent financial resources required for ongoing operations

A

permanent funding

60
Q

is crucial for businesses experiencing fluctuations in demand or production. It addresses the temporary need for extra financial resources during peak seasons.

A

seasonal funding

61
Q

prioritizes minimizing funding costs. This is achieved by borrowing onlh the exact amount required for short periods. This strategy assumes accurate sales forecasting and efficient inventory management. It requires a high degree of confidence in predicting demand and managing operations

A

Aggressive seasonal funding strategy

62
Q

characteristics of aggressive seasonal funding strategy

A
  1. Minimal permanent funding
  2. high leverage
  3. potential for higher returns
  4. risk of financial distress
63
Q

this strategy relies heavily on short-term financing to meet seasonal demands

A

minimal permanent funding

64
Q

businesses take on more debt to finance seasonal operations

A

high leverage

65
Q

agressive fundibg strategies can lead to higher profitability during peak seasons

A

potential for higher returns

66
Q

if sales fall short, businesses face challenges in meeting debt obligations

A

risk of financial distress

67
Q

a less risky approach to financing seasonal need. This strategy involves maintaining a higher level of cash on hand throughout the year. The company avoids potential financial strain but may miss out on opportunities for higher returns on investments

A

conservative seasonal funding requirement

68
Q

characteristics of conservative seasonal funding strategy

A
  1. Larger cash buffer
  2. lower debt levels
  3. lower risk
  4. stable operations
69
Q

this strategy uses larger cadh buffer to meet peak funding needs. This reduces the need to borrow excessively during peak seasons.

A

larger cash buffer

70
Q

a conservative approach prioritizes minimizing borrowing, keeping debt levels low, and avoiding excessive interest payments

A

lower debt levels

71
Q

the lower debt levels associated with this strategy translate to lower financial risk for the business

A

lower risk

72
Q

consistent cash flow and minimal debt make it easier to maintain stable operations even during seasonal fluctuations

A

stable operations

Treasury Management (5 decks)

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