Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Finance for Managers > Week 3- Working Capital Management > Flashcards

Week 3- Working Capital Management Flashcards

You may prefer our related Brainscape-certified flashcards:
Series 66 flashcards SIE Exam flashcards Series 63 flashcards Series 79 Top-Off Exam flashcards Series 7 Top-off Exam flashcards CFA flashcards Series 65 flashcards
1
Q

What does working capital management calculate?

A

How to maximise shareholder wealth in the short run

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is working capital?

A

Current Assets such as inventory, accounts receivable and cash

Current Liabilities such as accounts payable ( trade creditors) and short term debt

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the formula for Net WC?

A

Net WC = Current assets - Current liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the objective of WCM?

A

Aims to free up as much cash as possible so that it can be invested into somewhere else to maximise shareholder wealth.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How can a manager free up current assets (4 ways)?

A

1) reducing amount of inventory without endangering production
2) determining the optimal cash balance
3) Collect money from customers asap
4) Maintain good relationship with customers and take as much credit terms as possible without endangering supplies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the WCM trade off?

A

Current assets give the lowest returns so managers need to minimize them as much as possible but they are also essential to business survival ie. paying suppliers so you always need to maintain a sustainable level.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are the measures of NWC?

A

Operating Cycle and Cash Conversion Cycle

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

WHat is the Operating Cycle?

A

Measures the time elapsed from the firms receipt of raw materials to its collection of cash from the sale of finished goods `

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the cash conversion cycle?

A

the elapsed time between the points at which a firm pays cash for raw materials and at which it receives cash for finished goods

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the difference in time between the opertaing cycle and CCC?

A

The amount of time for which trade creditors are willing to extend credit for

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

WHat are the main components of the CCC? (3)

A

Inventory holding period
Trade Receivable days
Trade paybale days

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the inventory holding period?

A

average length of time needed to convert raw materials into finished goods and then to sell those goods

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is Trade Receivable days?

A

The time it takes to collect cash from customersrade

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

what is payable days?

A

the length of time between the purcahse of raw materials and the payment for cash for them

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the formula for the opertaing cycle?

A

IHP + TRD

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

WHat is the formula for the CCC?

A

Operating cycle -TPDs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

WHat is the IHP ratio?

A

(Average inventory held/ cost of goods sold) x 365

18
Q

What is the TRD ratio?

A

(Average trade receivables/credit sales) x 365

19
Q

What is the TPD ratio?

A

(Average Trade payables/Credit purchases) x 365

20
Q

What is current ratio formula?

A

Current assets/current liabilities (should be 1:1)

21
Q

what is the acid test ratio formula?

A

(Current assets -inventory)/current liabilities

22
Q

What is the objective of Inventory management?

A

Turn over inventory asap without losing sales from stock outs

23
Q

What are the three types of inventory?

A

Raw material
Work in progress (wip)
Finished goods

24
Q

What are the three types of cost?

A

Ordering cost
holding cost
stock out cost

25
Q

What is the stock out cost?

A

The loss of contribution because customers have to go elsewhere

26
Q

What are the two inventory management models?

A

Basic EOQ model
Stock out EOQ model

27
Q

What is the symbol for demand?

A

X

28
Q

What is the symbol for ordering cost?

A

A

29
Q

What is the symbol for holding cost/unit/average?

A

C

30
Q

What is the symbol for stock out/overdraft?

A

D

31
Q

What is the symbol for quanity ordered each time?

A

Q

32
Q

What is the symbol for cost of replenishing the accounts?

A

A

33
Q

what is the symbol for the opportunity cost of interest rate foregone?

A

C

34
Q

What is the objective of credit management?

A

To collect accounts receivable as quickly as possible without sale from high pressure collection techniques

35
Q

What are the three main steps of credit managemnet?

A

Credit selection and standards
credit terms
credit monitoring

36
Q

What is debt factoring?

A

When you sell your debts back to the bank to raise money quickly

37
Q

What are teh disadvantages of factoring?

A

Expensive because you have to pay a factoring fee

Signals to the market that the firm has cash flow problems

The bank may not treat customers as nicely when collecting the debts as you would which could affect your future relationship with the customer

38
Q

What are the motives for holding cash (4)?

A

1) To conduct normal business transactions
2) compensating motives- firms required to maintain compensating balance with a bank from which they have borrowed money
3) for contingency for uncertainty
4) enables firms to take advantage of bargain purchases that may only be availiable for limited periods

39
Q

What is an issue with EOQ models?

A

Assumes we know all teh figures (like demand) in advance

40
Q

What are the reasons why firms offer credit sales?

A

1) Other firms do so you have to to stay competitive
2) some firms cant raise funding quickly so offering credit is a competitev advantage for these customers

Finance for Managers (9 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions