Ch 16 FIN

The time taken to collect on credit sales is called the ___ period.

accounts receivable

Commercial paper is an example of a:

debt security and short term security

Which are activities that increase cash?

decreasing fixed assets & increasing long term debt

Some examples of restrictive short term financial policies include:

low investment in inventory, low cash balances, and few credit sales.

Inventory period equals _____ days divided by the inventory turnover.

365

The operating cycle equals the sum of the inventory period and the ________ period.

accounts receivable

Short term finance is concerned with current assets and current liabilities, whereas long term finance is concerned with _________.

dividend policy, capital structure and capital budgeting

Examples of short term financial decisions:

employee payroll & raising money using commercial paper

The ___________ cycle is the time from when inventory is acquired until cash is collected from the sale of the product.

operating

The primary concerns in short-term finance are the firm's short-run ______ and financing activities.

operating

Those firm activities that decrease cash are called:

uses of cash

Short-term finance is concerned with current assets and current liabilities, whereas long-term finance is concerned with ___.

- capital structure - dividend policy - capital budgeting

Sources of cash can involve increasing a(n) ______ account.

- liability - equity

The gap between short-term cash inflows and outflows can be filled by ___.

- maintaining a liquidity reserve - borrowing

The difference between the Input Field 1 of 2 inventory unavailable incorrect _____ cycle and the accounts payable period is the ____ cycle.

- operating - cash

Duty of a purchasing manager:

Inventory

Duty of a payables manager:

accounts payable

Carrying costs will increase with the level of investment in _________________.

current assets

An _____________ bank loan requires no security or collateral

unsecured

Which of the following activities decrease cash?

- Decreasing equity - Increasing fixed assets

The operating cycle is composed of which periods?

- Inventory period - Accounts receivable period

Which activities are primary to short-term finance?

- Operating activities - Financing activities

Which of the following firm activities decrease cash?

- Repurchasing stock - Paying off debt

Make a product:

what technology should be used?

Another name for short term financial management is _______ management.

working capital

Which of the following activities by a firm will increase cash?

- Selling stock - Selling bonds - Obtaining a loan

Short-term finance is primarily concerned with ___.

- current liabilities - current assets

What does an inventory period of 111 days mean?

On average, inventory sat for about 111 days before it was sold.

True or false: Current liabilities are obligations that are expected to require cash payment within one year.

True

Buying raw materials:

What is the desired level of inventory?

The optimal balance of current assets occurs where the sum of the carrying costs and the shortage costs is at _________.

a minimum

Non-committed lines of credit _________.

are informal arrangements & generally specify a maximum amount that can be borrowed

2 types of accounts receivable financing are _______ and __________.

assignment and factoring

Operating cycle is composed of which periods?

inventory period & accounts receivable period

What is the inventory period if the inventory turnover is 10 times?

36.5 Days

Examples of current liabilities:

Accounts Payable & Expense accruals

Examples of current liabilities:

Accounts Payable, accrued taxes and accrued wages

Which of the following represents a source of cash?

Accounts payable increases

Duty of a credit manager:

Accounts receivable

Difference between the operating cycle and the accounts payable period is the ___________.

Cash cycle

What does a receivables turnover ratio of 57 mean?

Customers took, on average, 57 days to pay.

True or false: Current assets are cash and other assets that are expected to convert to cash within 1-5 years.

False

True or false: The collection cycle is the difference between disbursement and collection of cash.

False

True or false: The operating cycle equals current assets minus current liabilities.

False

True or false: Buying raw materials requires a decision about how cash should be collected.

False, Buying raw materials requires a decision about how much inventory to order.

Some examples of restrictive short term financial policies are:

Few credit sales, low cash balances, and low investment in inventory

On disadvantage to a __________ financing policy is that ___________ rates are usually higher than ___________ rates.

Flexible, long term, short term

Duty of a cash manager:

Marketable securities

Carrying costs ________ with the level of investment in current assets.

Rise

Sell a product:

Should credit be extended?

Pay cash for purchases:

Should money be borrowed or cash reserves used?

Which of the following increase the cash cycle?

a longer inventory period and a longer receivables period.

Current liabilities are firm obligations that will require cash payment within ___.

a year

The ___ period is the time between the receipt of inventory and actually paying for that inventory.

accounts payable

The time from the acquisition of inventory to when the inventory is paid for is called the ___ period.

accounts payable

The opportunity costs of holding liquid assets are called _________ costs.

carrying

The difference between the operating cycle and the accounts payable period is the ______.

cash cycle

The time between paying cash for inventory and receiving cash from selling a product is called the ______.

cash cycle

The time between paying cash for inventory and receiving cash from selling a product is called the _____________.

cash cycle

For US corporations, current assets have fallen from 50% of total assets in the 1960s to 40% total assets today primarily because of more efficient:

cash mgmt & inventory mgmt.

Inventory loans use inventory as ________.

collateral

Short term finance is primarily concerned with __________.

current assets & current liabilities

In a situation where short term assets are always financed with short term liabilities and where long term assets are always financed with long-term liabilities, NWC is always ________.

equal to zero

The basic balance sheet identity can be written as Net working capital + Fixed assets = Long-term debt + ______.

equity

The basic balance sheet identity can be written as Net working capital + fixed assets = long term debt + ________.

equity

Shortage costs are those that ______ when the level of investment in current assets is high.

fall

A short term financial policy involving a higher proportion of long term debt than short term debt is classified as an _____________ policy.

flexible

Short-term cash flows are uncertain because ___.

future sales and costs cannot be precisely predicted

The marketing manager may want easier credit terms to increase sales, but the credit manager may worry about ______.

higher receivables and bad debt risk

Compensating balances effectively ________ the interest rate being paid on a loan.

increase

Which are characteristics of non-SEC registered commercial paper?

interest often below prime rate, issued by large highly rated firms, & issued directly by the firm.

The operating cycle is the sum of the ______________ period and the accounts receivable period.

inventory

The time it takes to acquire and sell inventory is called the ______ period.

inventory

Example of a restrictive short term financial policy:

keeping low cash balances

Some examples of short term flexible financing policies include:

large cash balances & large investments in inventory

Examples of short term flexible financing policies include:

large investments in inventory and large cash balances.

Sources of cash can involve increasing an ____________ account.

liability and equity

Current assets are listed on the balance sheet in ________ order.

liquidity

Example of a flexible short-term financial policy:

making large investments in inventory

Net working capital equals current assets _______ current liabilities

minus

One source of short term funds is trade credit. Using this source means a firm will take ____________ time to pay its payables.

more

The balance sheet identity says:

net working capital plus fixed assets equals long-term debt plus equity

Current liabilities are firm obligations that will require payment within the _______ period if it is longer than a year.

operating

The ______ cycle is the time from when inventory is acquired until cash is collected from the sale of the product.

operating

Which are shortage costs?

order costs & safety reserve costs

Steps of the operating cycle in order from first to last:

order inventory, sell the finished product, and collect cash from the sale.

Which represents short term finance concerns?

ordering raw materials and paying for supplies

A restrictive short term financing strategy implies ________________.

possible cash shortages and a small investment in NWC

Short-term cash flows are unsynchronized because the payment for raw materials usually does not match the cash flow from ___.

product sales

A product begins its accounting life as inventory and is converted to a(n) ______ when it is sold on credit.

receivable

Total asset turnover is defined as:

sales divided by total assets

Being low on cash can force a firm to _____________.

sell marketable securities, default on debt and borrow money

Which activities will increase cash?

selling bonds, obtaining a loan and selling stock.

Financing of current assets is measured by the proportion of:

short term debt and long term debt used to finance current assets.

2 major elements of a firm's short term financial policy are:

the size of the firm's investment in current assets & the financing of current assets.

Short-term assets are listed on the balance sheet in decreasing order of _______.

the time needed to convert them to cash

True or false: The gap between short-term outflows and inflows can be filled by holding a liquidity reserve.

True

Current assets are cash and other assets that will be turned into cash within ___.

a year

The time taken to collect on credit sales is called the _________ period.

accounts receivable

The time it takes to collect on the sale of a product is called the ___.

accounts receivable period