Introduction to WCM

1. The working capital requirement (WCR) is

a. inventories plus receivables less payables plus prepayments less accruals

b. working capital less short-term debt less cash
c. working capital plus short-term debt plus cash
d. inventories plus receivables less payables
Ans d
2. Working capital is
a. WCR less short-term debt less cash
b. equity plus long-term debt plus non-current assets
c. WCR plus short-term debt plus cash
d. equity plus long-term debt less non-current assets

Ans b

3. A management philosophy that incorporates a ‘pull’ system of producing

or purchasing components and products in response to customer
demand’ describes

a. just in time (JIT)

b. optimised production technology (OPT)
c. materials requirement planning (MRP)
d. kanban
Ans a

4. Short-term cash flow improvement may not be achieved by

a. reducing trade receivables
b. reducing trade payable
c. increasing trade payables
d. reducing inventories
Ans b
5. Long-term cash flow improvement may not be achieved by

a. increasing equity capital

b. increasing long-term liabilities
c. reducing capital expenditure
d. reducing long-term debt
Ans d
6.

The following are extracts from the income statement for the year ended 31 December 2009
and the balance sheet as at 31 December 2009.

a. - 33.3%
 b. + 40.0%

c. + 33.3%

d. - 40.0%
Ans d

7.

The following are extracts from the income

statement for the year ended 31
December 2009 and the balance sheet
as at 31 December 2009.

Income statement for the   £000

year ended 31 December
2009
Sales revenue   20,000
Cost of sales   (17,000)
     
Balance sheet as at 31 2008 2009
December
  £000 £000
     
Current assets    
Inventories 4,000 5,000
Trade receivables 2,500 3,000
Investments 3,000 1,500
Cash and bank 200 500
     
Current liabilities    
Bank overdraft 3,800 1,650
Trade payables 9,000 6,000
Taxation 800 1,000
Dividend (proposed) 100 200
Assume that sales and cost of sales for the
year 2008 were 10% below 2009 levels.
The operating cycle for 2009 is

a. 55 days

b. 33 days

c. 129 days

d. 107 days

Ans b

7. Companies may adopt an aggressive or a conservative working capital policy. An aggressive

policy means that a company
a. faces a low level of risk
 b. holds high levels of cash and inventories
c. has a low level of flexibility
d. expects a lower level of profitability
Ans d