Ch 16 B.F.
Inventory period equals ___ days divided by the inventory turnover.
365
Receivables period equals ___ days divided by the receivables turnover.
365
The payables period equals ____ days divided by the payables turnover.
365
The primary concerns in short-term finance are the firm's short-run ___ and financing activities.
operating
Which of the following increase the cash cycle?
A longer inventory period A longer receivables period
Buy raw materials.
What is the desired level of inventory?
Which of the following activities decrease cash?
Increasing fixed assets Decreasing equity
A short-term financial plan will include ______.
a minimum cash balance new short-term borrowing short-term borrowing repaid
The cash cycle is equal to the operating cycle minus the ______ period.
accounts payable
Which of the following are generally used as security for short-term secured loans?
accounts receivable inventory
The time it takes to collect on the sale of a product is called the ______.
accounts receivable period
The time it takes to acquire and sell inventory is called the ______ period.
inventory
Unsecured bank loans are ______.
short term
The operating cycle is composed of which periods?
Accounts receivable period Inventory period
What does an average collection period of 57 mean?
Customers took, on average, 57 days to pay.
True or false: Other important sources of short-term financing for a company include short-term stocks.
False
What does an inventory period of 111 days mean?
On average, inventory sat for about 111 days before it was sold.
Sell a product.
Should credit be extended?
Pay cash for purchases.
Should money be borrowed or cash reserves used?
Make a product.
What technology should be used?
Current assets are cash and other assets that will be turned into cash within ______.
a year
Current liabilities are firm obligations that will require cash payment within ______.
a year
The time from the acquisition of inventory to when the inventory is paid for is called the ______ period.
accounts payable
Which of the following represents a source of cash?
accounts payable increases
The operating cycle equals the sum of the inventory period and the ______ period.
accounts receivable
The time taken to collect on credit sales is called the ______ period.
accounts receivable
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
Other important sources of short-term financing besides secured and unsecured borrowing for a company are ______.
commercial paper trade credit
Short-term finance is primarily concerned with ______.
current liabilities current assets
The basic balance sheet identity can be written as Net working capital + Fixed assets = Long-term debt + ______.
equity
Sources of cash can involve increasing a(n) ______ account.
equity liability
True or false: Buying raw materials requires a decision about how cash should be collected.
false
True or false: Current assets are cash and other assets that are expected to convert to cash within one to five 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
Short-term cash flows are uncertain because ______.
future sales and costs cannot be precisely predicted
Which of the following are activities that increase cash?
increasing long-term debt decreasing fixed assets
A short-term financial plan will include which of the following?
interest on short-term borrowing minimum cash balance cumulative surplus (deficit)
Security for short-term loans usually consists of accounts receivable, ___, or both.
inventories
The shorter the cash cycle, the lower the firm's investment in ______.
inventories accounts receivable
The gap between short-term cash inflows and outflows can be filled by ______.
maintaining a liquidity reserve borrowing
Which of the following is not a characteristic of commercial paper?
maturities of one year or more
The balance sheet identity says:
net working capital plus fixed assets equals long-term debt plus equity.
Which activities are primary to short-term finance?
operating activities financing activities
The difference between the ___ cycle and the accounts payable period is the ___ cycle.
operating; cash
Which of the following firm activities decrease cash?
paying off debt repurchasing stock
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
Those firm activities that increase cash are called ______.
sources of cash
Under a conventional factoring, ______.
the receivables are sold at a discount the collection of the receivables is the factor's responsibility
True or false: Current liabilities are obligations that are expected to require cash payment within one year.
true
True or false: The cash cycle is equal to the operating cycle minus the accounts payable period.
true
True or false: The gap between short-term outflows and inflows can be filled by holding a liquidity reserve.
true
True or false: The payables turnover equals the cost of goods sold divided by the average payables.
true
A(n) ______ bank loan requires no security or collateral.
unsecured
Those firm activities that decrease cash are called ______.
uses of cash
Commercial paper is an example of a(n) ______.
debt security
The ______ period is the time between the receipt of inventory and actually paying for that inventory.
accounts payable
Short-term finance is concerned with current assets and current liabilities, whereas long-term finance is concerned with ______.
capital budgeting capital structure dividend policy
The two types of accounts receivable financing are ______ and ______.
assignment factoring