(C) 20,562 Inventory turnover ratio evaluates: (B) Temporary current assets should be financed with temporary working capital. Answer: (D) Any of the above (B) the company currently is unable to meet its short-term liabilities Some sectors that have longer production cycles may require higher working capital needs as they don't have the quick inventory turnover to generate cash on demand. Question 86. Its stock is priced at $100 a share and shareholders expect Zeta to pay dividends of $10 a year in perpetuity. The effective tax rate is 40%. (C) 5,83,000 Liquid ratio 1.6 (C) 315 Iakhs Question 60. Needless to say, thats a fairly broad definition. (B) higher return and risk. (B) seeks to increase dependence on long term financing. For 3rd & 4th week: in the next week. ), Management Accounting (Kim Langfield-Smith; Helen Thorne; David Alan Smith; Ronald W. Hilton), Financial Institutions, Instruments and Markets (Viney; Michael McGrath; Christopher Viney), Financial Reporting (Janice Loftus; Ken J. Leo; Noel Boys; Belinda Luke; Sorin Daniliuc; Hong Ang; Karyn Byrnes), Il potere dei conflitti. In valuation, the focus is on noncash working capital. What is difference between current ratio and quick ratio? (A) 57,41,813 B. minimum difference between current assets and current liabilities. x = Current Liabilities 96.25 (D) Profitability ratio, Question 80. 5,40,000 and Debtors at the end of year is ? Answer: (B) Issue long-term debt to buy inventory According to this concept working capital refers to a firm's investment in current assets. Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom. Company expects to earn 15% before interest and taxes on sales of 30,00,000. (A) Overrating Answer: Answer: Current assets are economic benefits that the company expects to receive within the next 12 months. Working capital is important because it is necessary for businesses to remain solvent. (A) 62,500 Answer: (C) 163.25 Which of the following statements is most correct? (B) Temporary working capital (C) There will be no change in working capital (B) 15,000, Question 107. y = 2,00,000 (B) (1) and (2) only Lag in payment g of overheads is 30 days. (A) 18,000, Question 106. Working capital estimates are derived from the array of assets and liabilities on a corporatebalance sheet. Bills receivable & Bills payable were 60,000 and 36,667 respectively. (A) (2) & (3) fixed overheads will remain same i..e. 36,000. (D) Without figures it is impossible to tell whether working capital will increase or decrease (C) is amount over and above the permanent level of working capital. 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(C) Operation working capital (D) includes accounts payable. Note: 1 Year = 360 days (D) Capital relating to main projects of the company (B) (ii) & (iii) Opening stock + Purchase Closing stock = Cost of goods sold (D) Trading capital Answer: D) $390,000 Workings Permanent working capital refers to the base working capital, which is the minimum level of working capital that is carried by the entity at all times to car View the full answer Transcribed image text: (i) Reduction of manufacturing cycle. (D) 50% of (Core Current Assets-Current Liabilities) (C) 75,75,000 x = Creditors payment period = 47, Question 113. (A) [50% of (Current Assets Core Current Assets)] Current Liabilities (D) 4,60,000 Become is not a loan provider, loan broker, or other funding provider and does not provide actual loans or any kind of advice. A) firm uses no debt in its capital structure. Net profit on cost of sales 20% Thus, the working capital equation is defined as the difference between current assets and current liabilities. Working capital = 11,70,000 + 9,58150 + 26,65,000 + 55,12,000 + 6,00,000 17,55,000 14,95,000 = 76,55,750. (D) Carrying excess inventories, Question 84. (A) Trade-off between profitability and risk. (A) 14,33,333 (C) Long term funds (A) the company has no current assets at all Answer: (D) Trial and error method (B) If a company increases its current liabilities by 1,000 and simultaneously increases its inventories by 1,000, its quick ratio must fall. What are the aspects of working capital management? Current assets 92,75,000 (D) 12,00,000, Question 110. (B) 23,40,000 All figures are in thousands of dollars. (D) money market instrument and long term securities. (A) operational and servicing (B) To reduce the levels of current liabilities. (C), Question 15. Interest rates are 6% p.a. (C) Sell common stock to reduce current liabilities Current Ratio = 2.4 Answer: Current liabilities are 70,00,000. To be clear, that number will change as your company grows and as your assets and liabilities change. Working capital is a highly effective barometer of a companys efficiency and effectiveness. (B) Which are less important from production angle. Prepaid expenses 37,500 Suppliers of material extend 4 week credit. Quick Ratio =1.0 (B) Net working capital Working capital is calculated by taking a companys current assets and deducting current liabilities. Question 59. (B) Increase of credit period allowed by creditors to the extent that do not affect the production. Most major new projects, such as an expansion in production or into new markets, require an upfront investment. is revolutionizing the business lending process, making it faster and easier than ever to get matched with the optimal lender. (C) 16.50% (D) Profitability ratio It fluctuates over time. Question 81. (A) higher return and risk. Management of Royal Ltd. has called for a statement showing the working capital needs to finance a level of activity of 18,000 units of output. If a company is fully operating, it's likely that severalif not mostcurrent asset and current liability accounts will change. Creditors 4 weeks \(\left(4,20,000 \times \frac{4}{52}\right)\) = 32308, Question 138. (D) In most industries, a current ratio of 2.0 is considered adequate. Scroll down to learn what permanent capital is and understand why its so important for the financial health of your small business. Operating cycle is also called as (D) 425 lakhs Reason (R): Current assets are those assets which in the ordinary course of business can be converted into cash within a short period of time. Answer: (D) 32,803 (B) Identify the level of inventory which allows for uninterrupted production. The major raw material to manufacture cement is limestone which is obtained on cash basis from a company located near the plant. Well, consider the fact that permanent working capital actually isnt permanent! Fuel, intact tires, and oil are all required. (D) All of the above (C) Liquidity Ratios, Question 88. Annual credit sales Cash sales Debtors Bills receivable Finished goods Collection Period = ? (A) Trade-off between profitability and risk. Following details are available for Pratik Ltd. (D) All of the above, Question 21. (A) 18,000 (C) 29,00,000 (D) Credit period (B) 12,89,265 Business loans come in many different shapes with varying rates, but finding the right one for your businesss needs doesnt need to waste your time or energy. (A) 28,750 A firm's permanent working capital refers to the: A. difference between fixed assets and current assets. Your goal is to accumulate $60,000 in seven years' time. (B) 76,55,750 Working capital fails to consider the specific types of underlying accounts. (C) Overcoming (C) 18,00,000 (C). (B) 24,00,000, Question 128. (D) 14,60,000 (A) 24,00,000 Working capital is also represented by a firm's net investment in current assets necessary to support its everyday business. (D) None of the above (D) Current assets less current liabilities The CTC Ltd. is attempting to establish a current assets policy. (C) lower return and very low risk Question 57. Temporary working capital usually fluctuates over the permanent working capital. (A) How often account receivable received (B) 6.77, Question 95. Working Capital Turnover measures the relationship of Working Capital with: That doesnt mean the competition between online and offline businesses is a certain win for e-commerce sellers though. Answer: Sales during the year was 13,00,000 and gross profit ratio was 25% on sales. The company can avoid taking on debt when unnecessary or expensive, and the company can strive to get the best credit terms available. Working capital in this case is Which of the following working capital strategies is the most aggressive? Current Assets are compared with: (A) Acid test days (B) 20,652 Answer: Rate of gross profit for export sale has to be taken 10%. B) firm uses a debt-equity ratio of 1.0. (C) [75% of (Current Assets Core Current Assets)] Current Liabilities. By forecasting sales, manufacturing, and operations, a company can guess how each of those three elements will impact current assets and liabilities. 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Answer: (D) Overtone (D) 90,000; 31,920 Answer: Which of the following is correct formula to calculate WIP Conversion Period? Total assets 60,00,000 (C) 1.22 (B) Current Liabilities, Question 67. If the interest rate is 7.5% p.a., what is the loan outstanding at the end of the first year? Which of the following will not be considered while calculating working capital on cash cost basis? (A) 20,00,000 Working capital refers to the capital or cash reserves of a business that is utilized to conduct its day-to-day operations. Answer: But do you know what it is? Question 47. (C) 16.50% (B) 39 days & 29 days Gross working capital indicates firm's investment and financing of current assets. (B) Sales. Stock or inventory in an organization means Question 139. (C) 200 (B) 12,500 (D) Current assets less current liabilities, Question 4. 2.4 = \(\frac{x}{y}\) (B) 60,000 drums (D) 5,20,000 (C) 32,308 Answer: Question 2. (C) Increase in credit period given to customers (D) Bills receivable (D) 4,51,370 (C) Coverage ratio Answer: Answer: (D) [80% of (Current Assets Core Current Assets)] Current Liabilities Current liabilities = 5,88,778 2,88,778 = 3,00,000 (A) All assets should be financed with permanent long term capital. For instance, if a company has current assets of $100,000 and current liabilities of $80,000, then its working capital would be $20,000. Answer: Regular Working Capital (A) Goods that are readily available for sale Bills receivable & Bills payable were 60,000 and 36,667 respectively. The loan requires 20 quarterly repayments at an interest rate of 8% p.a. Long terms loans are 5,58,80,450. Answer: Answer: (D) The current ratio does not include physical capital and quick ratio does. (C) 1,09,07,550 Assume 1 year = 52 weeks. Answer: An aggressive policy indicates (D) 10,20,000 PWC(permanent working capital) implies a WCs part where a minimum amount of CA is needed(locked up) so that the firm or company can run its business operations smoothly for a year and is computed by the minimum difference between CA and CL. To be clear, that number will change as your company grows and as your assets and liabilities change. (A) Annual Sales Opening Raw Material + Purchases- Closing Raw Material = Material Consumed This means the company does not have enough resources in the short-term to pay off its debts, and it must get creative on finding a way to make sure it can pay its short-term bills on time. 1 year = 365 days Projected annual sales 65 lakhs (C) 29 days Answer: (B) 4,00,000 (A) an example of moderate risk-moderate (potential) profitability asset financing. Working capital is the difference between a company's current assets and current liabilities. (B) Sales Answer: It is stated in the problem that rate of gross profit is 2096 and export sales price 1096 below domestic price. (C) 3 (three) Operating cycle days of Ramji Ltd. is 167 days. 0.2 \text { tone }}\)= 5,00,000 Drums, Question 147. 2,80,000 = 1.4y (D) 72,65,625 Raw material purchased on credit was 11,00,000. (C) 16,000 Answer: (D) 28,250 (A) Differential working capital The Online Marketplace for Business Lending. Any amount over and above the permanent level of working capital is known as working capital. (A) 60,000 (D) Company has no working capital (A) 0.405;0.435 11,96,188 = 75% of Current Assets Current Liabilities (D) 3,00,000 The amount of working capital a company has will typically depend on its industry. (D) All of the above Question 40. Understanding Coca-Cola's Capital Structure (KO). Current ratio 2.4 (C) 315 Iakhs Receivable management Current liabilities = ? (D) 1,10,00,726 Fixed working capital is also known as permanent working capital. (D) Business cycle (D) 14.44 (A) average number of days it takes to pay a supplier fixed assets. (C) Not enough data Hence total fixed overheads at current level of activity 36,000 1 = 36,000. Question 85. Which best describes the gross margin ratio? Negative working capital is an indicator of poor short-term health, low liquidity, and potential problems paying its debt obligations as they become due. (D) current assets. (C) 3.68 Course Hero is not sponsored or endorsed by any college or university. (B) 49,29,313 N Ltd. gives the following information: (B) Long term working capital (C) Matching/hedging Approach The company produces cement in200 kg drum. Answer: On the other hand, high working capital isnt always a good thing. 2,50,000 + Cost of production/purchase 3,75,000 = 9,75,000 (A) 60,000 The size of fixed working capital is proportional to the magnitude and growth of the business. (A) Capital Structure /Leverage Ratios Question 148. Current Assets = ? Simple enough, right? the minimum amount of working capital needed to maintain a cashflow; enough money to purchase materials, produce inventory, turn that inventory into profits, use those profits to purchase more materials, and so on. No. Permanent Working Capital refers to the minimum amount of all current assets that is required at all times to ensure a minimum level of uninterrupted business operations.Some minimum level of raw materials, working process, bank balance, finished goods, etc. C) The firm sells $10 million of marketable securities. (C) 49 days Question 54. (D) A new personal computer for the office, Question 56. (C) Average collection period Three alternative current assets policies are under consideration 40%, 50% and 60% of projected sales. The working capital ratio, also known as the current ratio, is a measure of the company's ability to meet short-term obligations. Regardless of the exact dollar amount, what remains true is that if your businesss capital were to fall below the fixed working capital requirement its not good. (A) 76,75,550 (D) None of the above (D) 78 days Approval of an actual loan from a third-party lender is subject to a separate assessment process by the third-party lender and the loan is subject to the third-party lender's terms and conditions. Income tax payable 56,250 (D) higher return and higher risk. Outstanding overheads appearing in balance sheet are 9,75,000. (D) 20,875 Answer: (D) Carrying excess inventories It experiences a decrease in its cash balance If you scale up business (and have higher operating costs), or if your business has more liabilities (debts to pay), youll have relatively higher permanent working capital. Since it changes as time goes on, measuring permanent working capital remains an ongoing process no matter how long youve been in business. Management of working capital involves the following four aspects: Determining the total fund requires to meet the current operations of the firm. (A) 50,000 drums The loan requires 20 quarterly repayments at an interest rate of 8% p.a. Debtors Collection Period: Question 94. Answer: 1 year = 360 days. From a financial analyst's viewpoint, "working capital" simply refers to current assets. If a companys current assets do not exceed its current liabilities, then it may have trouble growing or paying back creditors. (A) 32,380 How much outstanding wages will be shown in working capital statement? (A) Liquidity (A) 54 days If credit sales for the year is ? (B) Cost of Production, Question 89. Answer: Permanent working capital financed with long-term liabilities. (C) 36,40,000 Working capital is formally arrived at by subtracting the current liabilities from current assets of a firm on the day the balance sheet is drawn up. Answer: It might even go bankrupt. Answer: Fixed assets are 6,00,000 and the firm plans to maintain a 50% debt-to-assets ratio. (B) Operating capital. (D) 12,00,000 WORKING CAPITAL MANAGEMENT WORKING CAPITAL MANAGEMENT (WCM) involves managing the firm's current assets and current liabilities in order to achieve a balance between risks (liquidity) and returns (profitability). (A) 4,20,000 For year 2019 Equity Share Capital is Rs 4,00,000 Preference Share Capital is Rs.60,000 10% debentures is Rs.1,00,000 and Share premium is 40,000. You borrow $200,000. Current Ratio = ? Working Capital = 232.5 96.25 = 136.25. (A) Borrow short term to finance additional fixed assets. Operating cycles period equals: Inventory balance will increase before the peak . 9,75000 = Total Overheads \(\frac{30}{360}\) (A) 1,17,00,000 (C) Credit sales. Working Capital refers to the amount of money a firm needs daily. Answer: (D) 90,000 Permanent working capital: It refers to the hard core working capital. Answer: Fixed assets are 6,00,000 and the firm plans to maintain a 50% debt-to-assets ratio. C. (D) (B) & (C) is correct. (A) 22,125 (B) lower return and risk Which of the following would NOT improve the current ratio? What amount of interest is repaid in the first three months? (C) 16.50% Answer: (A) 19.71% (C) Current assets capital (C) Creditors velocity Therefore, companies that are using working capital inefficiently or needing extra capital upfront can boost cash flow by squeezing suppliers and customers. (A) 29 days Although the value of an increase in the interest tax shield may be positive, firms are most apt to restrict maximum difference between current assets and current liabilities. Copyright 2023 StudeerSnel B.V., Keizersgracht 424, 1016 GC Amsterdam, KVK: 56829787, BTW: NL852321363B01, Lawyers' Professional Responsibility (Gino Dal Pont), Auditing (Robyn Moroney; Fiona Campbell; Jane Hamilton; Valerie Warren), Culture and Psychology (Matsumoto; David Matsumoto; Linda Juang), Contract: Cases and Materials (Paterson; Jeannie Robertson; Andrew Duke), Na (Dijkstra A.J. Answer: (A) 57,41,813 (B) 19,250 (A) 19.71%, Question 145. (A) (i) &(iii) Effective management of working capital improves a firm's overall return on . Capital which is needed to meet the seasonal requirements of the business The term "permanent working capital" refers to the bare minimum current assets necessary to keep a firm solvent. (D) 4,76,000 (D) Both Statement I and Statement II are incorrect. Working capital is also known (B) Changes in working capital may bring about an adjustment of dividend policy. (B) Over trading, Question 30. (C) 10,000, Question 122. Current assets of the company are (C) 32,308 (B) 7596 of Current Assets Current Liabilities Total Overheads = 1,17,00,000, Question 127. Question 50. (B) 61 days (A) inventory and receivables. To evolve suitable policies, procedures and reporting system for controlling the individual components of current assets. WIP Conversion Period =18 days Question 64. If current assets are 1,09,05,750 and current liabilities are 32,50,000 then maximum permissible bank finance as per first method of Tandon Committee norms is (A) 2,00,000 Answer: (B) 2,36,712 Philippine School of Business Administration, Manila (Main Campus), Samuel Osekhehimen Oyakhilome R2004D10751656 - assignmet 2 new.pdf, d The water table was a guided discovery activity Question 15 5 5 points The, Cerebral spinal fluid o Cerebral blood flow o Brain tissue Any increases in CIP, summary judgment on Dashs actual damages claim 9 The Einhorn Reports failure to, Fictional_narratives_as_didactical_tools.pdf, To improve communication between and among individuals and groups d To improve, RELI 1000-601 Study Guide for Final Exam Fall 2022.pdf, 5 How can R2P be stated in more concrete terms so that it is clearer when, Sight In Schools Permission - Fillable Form.pdf, 2021 BSBLDR502_523_ Wk 1 Sess 2 Lead & Mx Effective Workplace Relationships 0521.pptx, Chapter 9 Criminal Procedure New - Quiz.pdf, Reference RFID Sourcebook QUESTION 93 Which two statements are true with respect, III c -d Vascular System parts 1&2(1).pdf. (B) 94 days (C) That debtors collection period has increased Fixed overheads are 1 per unit at current level of activity i..e. 36,000 packets. This is calculated by deducting the current liabilities against current assets. Another way to review this example is by comparing working capital to current assets or current liabilities. Calculate the debtors on cash cost basis form the following information for working capital purpose: (A) 5,40,000 Net working capital 2,80,000 (D) Cost of Sales (D) Inventory days (A) Operation cycle A company has prepared its annual budget, relevant details of which are reproduced below: (D) All of the above. (A) 450 1akhs Debtors 55,12,000 (D) Cant say Both figures can found in the publicly disclosed financial statements for public companies, though this information may not be readily available for private companies. (B) higher risk and poor liquidity, Question 44. (C) Which are held by the companies to pay-off current liabilities. (D) All of the above except (4), Question 6. (D) 1,00,000 drums (D) 5,20,000, Question 125. Your business REALLY needs it. (A) 34 days (A) varies with seasonal needs. (C) receivable, gross profit and inventory Cost of goods sold = 20,00,000 That isnt to say you should completely ignore temporary working capital on the contrary, you should do your best to balance your finances appropriately so that you have working capital left over for those temporary demands. (B) Deducted from gross working capital (C) 3,55,00,000 (A) 54 days Current Assets ? Answer: Check if you qualify. Answer: (B) 42,12,000 Average accounts payable are 80,000. Stock carrying (in terms of 8 weeks cost of sales requirement) Stock of the year is 20,000 more than what it was at the beginning of the year (C) Purchasing too much treasury stock (C) the average number of days it takes to collect an account. (C) Trade-off between equity and debt. It consists broadly of that portion of assets of a business that are used in or related to its current operations. (B) 76,55,750 (1) Short Term Advances (D) the firm may taken some different project with low internal rate of return. (B) Cost of Production Conversion of work in a process into finished goods. Answer: It is a financial measure, which calculates whether a company has enough liquid assets to pay its bills that will be due within a year. Permanent working capital: Also known as "fixed working capital," this is the minimum amount of funds that must be in cash or current assets, required to cover all current liabilities. (A) Current Profit Answer: For example, Microsoft's working capital of $96.7 billion is greater than its current liabilities. III. (C) Decrease in working capital Heres a condensed look at how permanent working capital compares with temporary working capital: It should go without saying that permanent and temporary working capital demand different levels of attention. (B) 37,80,000 Where current assets refer to the sum of cash, accounts receivable, raw material and finished goods inventory. = 75% (20,93,250 3,73,750) (D) 25,00,000 (C) (1), (2) & (3) Learning Objective: 19-01 Show how long-term financing policy affects short-term financing requirements. (D) Stock Accounts payable are analyzed by the Calculate closing stock of WIP on cash cost basis. (B) 37,80,000, Question 117. (A) Statement I is correct while Statement II is incorrect. Question 18. Peter Berngarten owns 100 shares of. The amount of working capital that exceeds the permanent level is considered as the temporary working capital. (C) Cost of Goods Sold Your yearly loan repayments on a $500,000 loan over ten years are $72,842.96. (A) All assets should be financed with permanent long term capital. (C) Variable The precise value of your businesss fixed working capital will be relative to the size of your business, as well as the value of your current assets and your current liabilities. 3,18,75,000 = O,75x 52,50,000 D) firm uses no equity in its capital structure. Common examples of current assets include cash, accounts receivable, and inventory. (D) Activity Ratios Simple enough, right? A Ltd. financial statement shows the following data: (D) All of the above except (4) (D) All of the above, Question 11. If raw material consumed is 8,42,000; cost of production is 14,25,000; Stock of raw material & WIP is 1,24,000 and 1,72,000 respectively then Raw Material Conversion period will be Calculate maximum permissible bank finance by Third Method of Tandon Committee norms. Working capital, also called net working capital, represents the difference between a companyscurrent assetsand current liabilities. (C) 2,63,127 How much of creditors will be shown in preparation of working capital statement? C. portion of net working capital that is financed from long-term sources. (D) 90,000; 31,920, Question 130. These Working Capital multiple choice questions are useful for MBA, BBA, B Com, M Com, PGDM, BA, MA, UGC NET, SET, MPSC, UPSC and Ph D exams. (C) 10,10,000, Question 116. Answer: Examples of current liabilities include accounts payable, short-term debt payments, or the current portion of deferred revenue. (D) 18.67% Working Capital is the amount of funds necessary to cover the cost of operating the enterprises. (C) 2,92,50,000 It is mainly concerned with the fact that funds are not unnecessarily locked in current assets. (C) 16,33,333 (D) 1,92,50,000 (A) Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs. It is understood that a current ratio of .. for a manufacturing firm implies that the firm has an optimum amount of working capital. (C) That debtors collection period has increased, Question 68. (D) 16,66,667 The permanent part comes from the consistent need for a business to meet the permanent working capital requirement, regardless of how the businesss activity levels might look. (A) Collection period+Inventory holding period Creditor Payment Period, Question 71. Only Assertions is correct Only Reason is correct Decrease in current assets means Material consumed in income statement is shown at 3,60,000. Working Capital Management Explained: How It Works, Current Ratio Explained With Formula and Examples. 9,90,000 + x 10,10,000 = 20,00,000 (D) 18.67% (B) 11,667 (A) Hedging Approach A negative working capital means that -.. Thats the difference between permanent and temporary working capital in a nutshell. 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Less current liabilities capital usually fluctuates over time less current liabilities are 70,00,000 review this example is by comparing capital.