3.7 - Working Capital - Quiz 3

Which of the following is NOT true of working capital?

• It is the amount of capital the firm has available to pay for its operations

• The amount of money a firm has to spend in the short term

• It is a measure of the firm's liquidity

• It is the sum total of a firm's fixed assets

Which of the following is the correct formula for working capital?

• current liabilities - fixed assets

• current assets - current liabilities

• costs - revenue

• current liabilities - revenue

What does this represent?

• Working Capital Cycle

• Business Activity

• Profit and Loss

• Finance Processes

The _________________ the amount of time between buying materials (inputs) to receiving payments from the customer the higher the risk to a firm.

• Longer

• Shorter

Sufficient working capital is needed to prevent a business from becoming insolvent.

• True

• False

Anyone who has bought from a business without payment (buying on credit) is known as a _____________.

• Debtor

• Creditor

"Current liabilities" are debts that have to be paid ________

• in the next 12 months

• in the next 5 years or more

• in order to buy a current asset

• to buy more working capital

One way a firm can shorten the working capital cycle is:

• Reduce the amount of debt

• Decrease the amount of current assets

• Increase the amount of time customers have to pay on credit

• Reduce the amount of time customers have to pay on credit

The working capital situation of a firm can be improved by obtaining ______________ forms of _____________ term finance.

• external, short

• internal, long

Obtaining too much external finance to improve working capital can make the problem worse.

• True

• False