Working Capital and Liquidity practice questions

What to know

Identify the rule, formula, or decision criterion before reading the answer choices. CFA Level I distractors often use the right vocabulary with the wrong condition.

How to practice

Work each item under time pressure, then compare your reasoning with the step-by-step explanation and key takeaway.

Review signal

Missed questions should become scheduled reviews when the error comes from a concept gap, formula setup, or answer-choice trap.

Corporate Issuers

Working Capital and Liquidity

Which of the following is most likely a secondary source of liquidity for a corporate issuer?

Corporate Issuers

Working Capital and Liquidity

Following a credit downgrade, key suppliers of Danube Foods shorten the company's payment terms from 60 days to 15 days. This change is best described as a:

Corporate Issuers

Working Capital and Liquidity

A retailer finances both its seasonal inventory build and its permanent base level of inventory with short-term commercial paper that it rolls over continuously. This working capital financing approach is best described as:

Corporate Issuers

Working Capital and Liquidity

Anika Berg, an analyst, compiles the following annual data for Solstice Mills: cost of goods sold of 547.5 million, average inventory of 90 million, credit sales of 912.5 million, average receivables of 115 million, purchases of 584 million, and average payables of 64 million. Using a 365-day year, the cash conversion cycle is closest to:

Corporate Issuers

Working Capital and Liquidity

Tarragon Devices currently has days of inventory on hand of 55, days sales outstanding of 40, and days payables outstanding of 30. Management negotiates supplier terms that raise days payables outstanding to 45 and introduces early-payment discounts that cut days sales outstanding to 32, but slower stock turnover raises days of inventory on hand to 58. The company's new cash conversion cycle is closest to:

Corporate Issuers

Working Capital and Liquidity

Net working capital is best calculated as:

Corporate Issuers

Working Capital and Liquidity

The cash conversion cycle is most accurately calculated as:

Corporate Issuers

Working Capital and Liquidity

An issuer has days of inventory on hand of 48 days and days sales outstanding of 37 days. The operating cycle is closest to:

Corporate Issuers

Working Capital and Liquidity

An issuer reports days of inventory on hand of 52, days sales outstanding of 41, and days payables outstanding of 36. The cash conversion cycle is closest to:

Corporate Issuers

Working Capital and Liquidity

A company has cash of 20 million, marketable securities of 15 million, receivables of 65 million, inventory of 90 million, and current liabilities of 95 million. The quick ratio is closest to:

Corporate Issuers

Working Capital and Liquidity

A CFO shortens customer payment terms to reduce days sales outstanding. The most likely trade-off is:

Corporate Issuers

Working Capital and Liquidity

An analyst estimates annual cost of goods sold of 730 million, average inventory of 80 million, annual credit sales of 1,095 million, average receivables of 90 million, annual purchases of 760 million, and average payables of 95 million. Using 365 days, the cash conversion cycle is closest to:

Corporate Issuers

Working Capital and Liquidity

A committed revolving credit facility is most appropriately viewed as a tool that: