Working Capital And Cash Flow

Question 1

What is the formula for inventory turnover period?

Answer 1

COS/inventory

Question 2

What is the economic order quantity (EOQ) formula?

Answer 2

Square root of 2 x CoD / Ch

Co is the cost of placing an order

D is the annual demand in units

Ch is the annual cost of holding one unit in inventory

This formula gives the ideal order quantity to minimise total inventory cost (holding + ordering)

Question 3

Which two of the following might be associated with a lengthening cash cycle?

• Lower net operating cash inflow
• Lower investment in working capital
• Taking longer to pay trade suppliers
• Slower inventory turnover
• Higher net asset turnover

Answer 3

• Lower net operating cash inflow

- Slower inventory turnover

Question 4

Which of the following tasks are normally undertaken by the treasury department of a large business?

A) credit control

B) short-term investment

C) capital investment appraisal

Answer 4

A & B

Question 5

What is meant by an aggressive working capital policy?

Answer 5

Liquidity decreases but profitability would increase

Question 6

How do you work out the proportion of variation in a that is explained by variation in b between two variables when given the correlation coefficient?

Answer 6

You square the correlation coefficient (r)

Question 7

The management of working capital is essentially about balancing what?

Answer 7

Liquidity and profitability?