Chapter 16. Short-Term Financial Planning
Uses of cash can involve increasing a(n)
1.) Non cash current asset 2.) Fixed asset
Receivables period equals how many days divided by the receivables turnover
365 Days
Inventory period equals how many days divided by the inventory turnover
365 days
The payables period equals how many days divided by the payables turnover
365 days
The cash cycle is equal to the operating cycle minus the
Accounts Payable Period
Which of the following represents a source of cash?
Accounts payable increases
The opportunity costs of holding current assets are called
Carrying Costs
The primary tool in short-term financial planning is the
Cash Budget
Ending accounts receivable equals starting accounts receivable plus ______ minus collections
Credit Sales
What does a receivables turnover ratio of 57 mean?
Customers took, on average, 57 days to pay.
True or false: Cash collections equal beginning cash times sales
False
True or false: The collection cycle is the difference between disbursement and collection of cash
False
True or false: The net payments receivable equals the cash collections minus the cash disbursements
False
True or false: The operating cycle equals current assets minus current liabilities
False
Which activities are primary to short-term finance?
Finance & operating activities
A short-term financial policy involving a higher proportion of long-term debt than short-term debt is classified as a(n)
Flexible Policy
Firms who attempt to match the maturity of assets and liabilities are said to employ
Maturity hedging
The difference between cash collections and cash disbursements is the predicted
Net cash flow
Which of the following activities by a firm will increase cash?
Obtaining a loan, Selling stock, Selling bonds
What does an inventory period of 111 days mean?
On average, inventory sat for about 111 days before it was sold.
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
Which of the following firm activities decrease cash?
Repurchasing stock & Paying off debt
Those firm activities that increase cash are called
Sources of cash
True or false: The cash cycle is equal to the operating cycle minus the accounts payable period
True
True or false: The payables turnover equals the cost of goods sold divided by the average payables
True
A flexible short-term financing strategy implies
a relatively large pool of marketable securities & cash surpluses
Which of the following represents a use of cash?
accounts receivable increases, paying off a loan, repurchasing stock
The operating cycle equals the sum of the inventory period and the?
accounts receivable period
The operating cycle is composed of which periods?
accounts receivable period & inventory period
Being low on cash can force a firm to
borrow money, sell marketable securities, default on debt
The time between paying cash for inventory and receiving cash from selling a product is called the
cash cycle
Commercial paper is an example of a(n)
debt security
The two types of accounts receivable financing are
factoring and assignment
A lack of safety reserves can lead to which of the following?
lost sales & lost customer goodwill
Which of the following is not a characteristic of commercial paper?
maturities of one year or more
Carrying costs involve
opportunity costs
Place the steps of the operating cycle in order from first to last
order inventory, sell the finished product, collect cash from the sale
Unsecured bank loans are
short term
Ideally, short-term assets are financed with
short term liabilities
The cash budget allows the firm to identify
short-term financial opportunities & short-term financial needs
Under a conventional factoring
the collection of the receivables is the factor's responsibility & the receivables are sold at a discount
Which bank loan requires no security or collateral
unsecured
Those firm activities that decrease cash are called
uses of cash
