Question 45. Answer: (D) Working capital turnover ratio Finished goods storage period 22 days (2) Manufacturing cycle C) The firm sells $10 million of marketable securities. Working capital is often stated as a dollar figure. Answer: Current assets = 60,00,000 32,00,000 = 28,00,000 A lower current assets/fixed assets ratio means (A) 4,81,250 (C) 10,10,000, Question 116. What can be considered the firm's permanent working capital? (A) All assets should be financed with permanent long term capital. y = 2,00,000 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. 2,50,000 + Cost of production/purchase 3,75,000 = 9,75,000 (a) Value : From the value point of view, Working Capital can be defined as Gross Working Capital or Net Working Capital. (D) Stock Answer: (B) 10,00,000 Because of defaults, the receivables prove. Answer: (B) Sales equivalent to borrowing at an annual interest rate of: Annual Interest Rate = 1 / (0.99) ^ 52 = 68.6%. It experiences a decrease in its cash balance. Debtors + Bills Receivable = Account Receivable Answer: Although commercial paper is unsecured, the companies that issue this short-term security are: Issuing additional long-term debt of $5 million and buying new long-term assets worth $5 million will result in a net cash, Issuing new long-term debt is a source of capital and buying new assets is a use of cash. (B) Working capital increases as compared to last year, Question 91. 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A firm's permanent working capital refers to the: A. difference between fixed assets and current assets. Which of the following working capital strategies is the most aggressive? Answer: (C) Core current liabilities for purchasing raw material and supplies, payment of wages, salaries and other sundry expenses. (A) 60,000 (C) receivable, gross profit and inventory Question 55. (C) Identify the appropriate credit policy. (A) 62,500 The effective tax rate is 40%. (D) Trading capital Managing working capital has a significant impact on the financial performance of firms. (D) 4,60,000 (D) net profit and receivables Which of the following is not considered while calculating accounts receivable period? (D) Credit period Long terms loans are 5,58,80,450. 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 is a highly effective barometer of a companys efficiency and effectiveness. Answer: In other words, it represents the current assets required on a continuing basis over an entire year . (D) Aggressive Approach (D) 90,000; 31,920 The amount of working capital a company has will typically depend on its industry. (B) Making greater use of long term finance and minimizing net short term asset. Answer: Current Ratio = ? (B) 50% of (Current Assets Current Liabilities) In the corporate finance world, current refers to a time period of one year or less. (A) Operation cycle WIP conversion period 36 days (D) 2.5 (two and half) We reviewed their content and use your feedback to keep the quality high. A higher current assets/fixed assets ratio indicates Current liabilities include accounts payable, wages, taxes payable, and the current portion of long-term debt thats due within one year. (A) equity capital, preference capital, debentures, bonds and long term bank loans. (C) the company has negative earnings before interest and tax It is stated in the problem that rate of gross profit is 2096 and export sales price 1096 below domestic price. (C) Which are held by the companies to pay-off current liabilities. A similar financial metric called the quick ratio measures a ratio of current assets to current liabilities. (A) 32,380 Rate of gross profit is 20%. It fluctuates over time. The company is therefore said to have $70,000 of working capital. How to calculate permanent working capital. Financing a long-lived asset with short-term financing would be (D) Variable working capital, Question 22. M.F.M. 4. (C) Decrease in working capital (B) Companys inventory purchasing efficiency Answer: (330) O A. (C) That debtors collection period has increased, Question 68. In this case, the: If the Statement of Sources and Uses of Cash shows a decrease in cash balance, which of the following changes might have. Material consumed in income statement is shown at 3,60,000. (B) Core current assets less core current liabilities (D) Conservative current assets policy (D) the company is able to pay-off its short-term liabilities. (C) 90 days Answer: Answer: Stock carrying (in terms of 8 weeks cost of sales requirement) Also given, Dividend paid on shares Rs 15,000 and Interest paid on debentures Rs. (A) higher return and risk. (C) Riskier current assets policy (C) 5096 of Current Assets Current Liabilities (C) Operating cycle The CTC Ltd. is attempting to establish a current assets policy. (B) The current ratio does not include inventory and quick ratio does. An example of this is a firm's 100,000 Working Capital, deducting 200,000 to 300,000 in current liabilities. (B) 43 days If a companys current assets do not exceed its current liabilities, then it may have trouble growing or paying back creditors. Average accounts payable are 80,000. (C) mode of overdraft, cash credit, public deposits etc. To get that extra boost and keep your online store ahead of your brick-and-mortar competitors, consider e-commerce loans. Debtors collection period = ? Answer: Alternatively, it could mean a company is failing to take advantage of low-interest or no-interest loans; instead of borrowing money at low cost of capital, the company is burning its own resources. ; Philippens H.M.M.G. 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. (A) 19.71% (D) 28,462 (A) Fixed working capital, Question 32. Further export sale has to be made 10096 from 90% for the purpose of calculation of gross profit. Current Assets = ? (C) Purchasing too much treasury stock There is deterioration in the management of working capital of XYZ Ltd. What does it refer to? (B) the firms investment in current assets. Operating cycles period equals: (A) 18,000, Question 106. Number of drums = \(\frac{1,00,000 \text { tone }}{200 \mathrm{~kg} \text { i.e. } (C) Company has negative working capital 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. Operating cycle is also called as Stock = 5,60,000 Working capital is calculated by taking a companys current assets and deducting current liabilities. Working Capital Ratio: What Is Considered a Good Ratio? Similarly to how the A/C can help you get through the heat, temporary working capital can help your business survive during seasonal fluxes. (A) 136.25 Current liabilities (such as trade credit from suppliers) is an important source of financing for many small firms. All assets financed with a 50 percent equity, 50 percent long-term debt mixture. (D) the company is able to pay-off its short-term liabilities. 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. is also known as working capital ratio. Answer: (D) 4096 of Current Assets Current Liabilities The concept of working capital can also be explained through two angles. (D) 90,000; 31,920, Question 130. Answer: (C) Extra working capital Net working capital 2,80,000 Answer: WIP Stock 9,58,750 Fixed overhead are 4,32,000 p.a. (B) 4,95,00,000 (B) All the assets available for sale Question 10. Maximum permissible bank finance as per first method = 75% of Calculate the number of drums to be manufactured. (A) where the firm relies heavily on short term bank finance. N Ltd. gives the following information: (C) 12,89,625 Temporary working capital usually fluctuates over the permanent working capital. (B) 360 lakhs (A) Cash float. (3) Credit policy Outstanding Overheads = Total Overheads = \(\times \frac{\text { Lag in payment of overheads }}{360}\) Raw material conversion period is 36 days. Answer: (B) Accounts receivable. (B) 81,79,313 Updated on: 5 January 2023. x = 47 The size of fixed working capital is proportional to the magnitude and growth of the business. (D) represents the amount utilized at the time of contingencies. Its true, fixed working capital will change as your business grows. (C) 163.25 (B) Current asset cycle (C) Both Statement I and Statement II are correct. Working capital is the difference between a company's current assets and current liabilities. (A) 450 1akhs After all, a business cannot rely on paper profits to pay its billsthose bills need to be paid in cash readily in hand. Lag in payment g of overheads is 30 days. (A) 12,98,625 You borrow $200,000. (B) 76,55,750 Answer: Working Capital Cycle. Cost of goods sold = 20,00,000 Short-term assets financed with equity. With the power of technology, Become is revolutionizing the business lending process, making it faster and easier than ever to get matched with the optimal lender. (D) no risk at all with low liquidity Question 85. Answer: Accounts payable are analyzed by the (D) 3,60,000 (C) 3,42,857 Answer: Cost Structure for WIP: Question 136. Inventory balance will increase before the peak . (D) 39 days x = Current Liabilities 96.25 (A) 16,667 (C) Both (A) & (B). (B) 37,80,000 (A) If a company increases its current liabilities by 1,000 and simultaneously increases its inventories by 1,000, its current ratio must rise. Understanding Coca-Cola's Capital Structure (KO). An effective working capital management strategy will help an organisation maximise profitability and liquidity. (B) (ii) & (iii) The major raw material to manufacture cement is limestone which is obtained on cash basis from a company located near the plant. (B) 32,830 1 Sources of permanent working capital are the following a Owners funds are the. (B) 22,67,000 (B) 24.00% (C) (i) & (ii) (A) 75% of (Current Assets Current Liabilities), Question 38. amounts that must be held to meet debt covenants. (C) 16.50% Answer: 3,71,25,000 = 0.75x (A) Trade-off between profitability and risk. (B) II Question 1. Answer: Current liabilities = ? (B) Net working capital Question 54. (D) Which are converted in to cash within a period of one year. Answer: Answer: Once youve got that list, simply find the smallest number. (A) Current capital or circulating capital Expected production and sales are 48,000 units and 35,000 units respectively. (B) Business cycle (B) Current ratio, Question 79. (D) Increase in accounts payable days. (A) 13.75 If a company has substantial positive NWC, then it could have the potential to invest in expansion and grow the company. Which of the following is correct formula to calculate debtors collection period? Question 58. 3,18,75,000 = 0.75 (x 70,00,000) (A) 4,20,000 Answer: (B) 15,66,667 Which of the following is/are method of maximum permissible bank finance as recommended by the Tandon Committee? There has been a plethora of research works about entrepreneurship in the last two decades since enterprises are now treated as one the major driving forces, if not the most influential, of global economy as a whole. (D) 3,00,000 Most of the time, long-term financial options are used to get fixed working capital. Creditors + Bifis Payable Account Payable Working capital in this case is Outstanding expenses 14,95,000 (D) 49,41,813 (D) 1,92,50,000 55.625 = [0.75 (232.5 30)] x x = Net working capital = 72,65,625, Question 143. (A) 80 days (C) Sell common stock to reduce current liabilities Question and Answer forum for K12 Students. Answer: (B) 7596 of Current Assets Current Liabilities. Closing stock = ? Dont get it twisted, permanent working capital is something any/every successful business owner is aware of. Which of the following is correct formula to calculate WIP Conversion Period? (D) 160.05 x + 36,667 = 3,36,667 3,18,75,000 = O,75x 52,50,000 By forecasting sales, manufacturing, and operations, a company can guess how each of those three elements will impact current assets and liabilities. (A) Reserve Working Capital, Question 31. Total sales of OLX Ltd. are 31,248 out of which 25% are cash sales. (A) 57,41,813 B. maximum difference between current assets and current liabilities. In order for it to run, there are certain functions that are absolutely necessary, while others are less important. (D) Cost of Sales Finished goods conversion 29 days period Creditors payment period = ? Current assets are likely to decline by 20%over the existing level This included cash, cash equivalents, short-term investments, accounts receivable, inventory, and other current assets. Another way to review this example is by comparing working capital to current assets or current liabilities. (A) 2.48 (B) Temporary current assets should be financed with temporary working capital. (C) 80,000 drums x = Current Assets = 2,00,000 2.4 = 4,80,000, Question 111. (A) Overrating Capital which is needed to meet the seasonal requirements of the business (C) 148 days, Question 98. Current liabilities are simply all debts a company owes or will owe within the next twelve months. Gross profit ratio = 20% Opening and closing balance of creditors are 2,00,000 & 2,40,000 respectively. For reducing and controlling working capital requirement which of the following step is required to be taken What are the aspects of working capital management? Working Capital is the amount of funds necessary to cover the cost of operating the enterprises. Answer: Therefore, companies that are using working capital inefficiently or needing extra capital upfront can boost cash flow by squeezing suppliers and customers. For 3rd & 4th week: in the next week. When a working capital calculation is negative, this means the company's current assets are not enough to pay for all of its current liabilities. Answer: (C) Coverage ratio Answer: Become is not a loan provider, loan broker, or other funding provider and does not provide actual loans or any kind of advice. Liquid Ratio = ? (B) 4,00,000 (D) 120 days (C) That debtors collection period has increased (D) None of these (D) 425 lakhs (D) 19,800 The management is of the opinion to make 12% margin for contingencies on computed figure. Stock of the year is 20,000 more than what it was at the beginning of the year (A) 1,09,05,750 (C) Long term assets should be financed from long term capital. Interest rates are 6% p.a. 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