TEST 3 – UNIT 18 – THE MANANAGEMENT OF WORKING CAPITAL

TEST REVIEW 3

I. FILL IN THE GAPS IN THE FOLLOWING SENTENCES WITH SUITABLE

WORDS FROM THE BOX

and reduce sufficient which smaller

repay higher directly depend lower

competitive deciding increase smooth while

1 The cash operating cycle (also known as the working capital cycle or the cash conversion
cycle) is the number of days between paying suppliers ............ receiving cash from sales.

2 Efficient working capital management helps to improve the company’s profitability and
..............its financial operations

3 To............... bad debts, you should implement more rigorous credit checks and ensure that
effective credit control procedures are in place to chase late-paying customers.

4.Determining business requirements is the first step in .................on the best way to fund
working capital

5. Overall, working capital depends on your business’s operating cycle,.............. starts when
funds leave your company to buy products or services (such as inventory or your monthly
cleaning service), to the time it is returned as revenue from a sale

6. When you’re unable to ............. debts but are still running your business with low operating
costs, creditors will try to get their funds back.

7. The longer your debt goes unpaid, the................ your business’s credit score will drop

8. You’ll gain a...................... advantage over your peers because your supply chain logistics are
working at a lower cost

9 Working capital management is a very important component of corporate finance because

it .......... affects the liquidity and profitability of the company.

10. Short-term securities have ..................fluctuations in prices than long-term securities

TEST 3 – UNIT 18 – THE MANANAGEMENT OF WORKING CAPITAL

II. READING COMPREHENSION

Working capital is a common measure of a company’s liquidity, efficiency, and overall health.
Because it includes cash, inventory, accounts receivable, account payable, the portion of debt
due within one year, and other short-term accounts, a company’s working capital reflects the
results of a host of company activities, including inventory management, debt management,
revenue collection, and payments to suppliers.

Positive working capital generally indicates that a company is able to pay off its short-term
liabilities almost immediately. Negative working capital generally indicates a company is unable
to do so. This is why analysts are sensitive to decreases in working capital, they suggest a
company is overleveraged, is struggling to maintain or grow sales, is paying bills too quickly or
is collecting receivables too slowly. Increases in working capital, on the other hands, suggest the
opposite. There are several ways to evaluate a company’s working capital further, include
calculating the inventory-turnover ratio, the receivables ratio, days payable, the current ratio, and
the quick ratio.

One of the most significant uses of working capital is inventory. The longer inventory sits on the
shelf or in the warehouse, the longer the company’s working capital is tied up

When not managed carefully, business can grow themselves out of cash by needing more
working capital to fulfill expansion plans than they can generate in their current state. This
usually occurs when a company has used cash to pay for everything, rather than seeking
financing that would smooth out the payments and make cash available for other uses. As a
result, working capital shortages cause many businesses to fail even though they may actually
turn a profit. The most efficient companies invest wisely to avoid these situations

Analysts commonly point out that the level and timing of a company’s cash flow are what really
determine whether a company is able to pay its liabilities when due. The working capital formula
assumes that a company really would liquidate its current assets to pay current liabilities. Which
is not always realistic considering some cash is always needed to meet payroll obligations and
maintain operations. Further, the working capital formula assumes that accounts receivable are
readily available for collection, which may not be the case for many companies

Questions:

1. What can we identify based on the working capital?

A. The company can pay off short – term debt completely

B. The company has enough raw materials to produce goods

C. The company can afford to pay short- term debt

D. Working capital is used to purchase fixed assets

TEST 3 – UNIT 18 – THE MANANAGEMENT OF WORKING CAPITAL

2. What happens if there are too much inventories on hand?

A. To insure the ongoing production

B. Working capital is stagnant

C. If you run out of a certain products, you could miss out on potentially profitable sales,
and this could cause customers to give their business to your competitors

D. The company has to spend more money on maintaining the quality of goods

3. How many assumes in working capital formula?

A. 1 B. 2

C. 3 D. 4

4. To reduce the lack of working capital, what should we do?

A.Make a loan from bank B.Issue shares, bonds, debentures,…

C.Spend money reasonably D.Invest wisely

5. What does working capital reflect ?

A.Inventory management and payments to suppliers B.Debt management

C.Fixed assets D.A and B

III. MAKE UP THE SENTENCES USING THE WORDS OR PHRASES GIVEN:

1. Profitability / determine / in part / the way / which / company / manage / its / working
capital.
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2. Financial statements / analyze/ management / use/ basic / business decisions / allocation /
financial resources / development / new / products/ expansion / operation.
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3. Working capital / require / finance / gap / between/ payment / due to / suppliers / payment
/ owe / customers.
TEST 3 – UNIT 18 – THE MANANAGEMENT OF WORKING CAPITAL

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4. Profitability / determined / part / way / company / manage / working / capital.
………………………………………………………………………………………………
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5. Part / profit / go / to/ government / taxation / part / usually/ distribute / shareholders/
dividend / part/ retain / company.
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6. Principal / functions / financial / management / provide/ correct / amount / working

capital / right / time/ right/ place/ realize / greatest / return / investment.
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7. Working capital / initially / broken down / 2 types / permanent / temporary.
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8. Job / finance/ manager / minimize / stocks/ raw/ materials/ level / work-in-progress /
quantity / finished / goods.
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9. company / working capital / reflect / result / host / company activities / include /
inventory management, /debt management ,/ revenue collection, / payments / suppliers./
………………………………………………………………………………………………
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IV. MATCHING
TEST 3 – UNIT 18 – THE MANANAGEMENT OF WORKING CAPITAL

1. marketable A. is the goods and materials that a business holds for the ultimate goal
securities of resale (or repair).

B. the amount or value of a firm’s past assets that consist of raw

materials , work in progress and finished goods , stock
2. Finished goods
C. the money that a company needs to operate and produce its goods
or provide its services,or to make payments to
employees,suppliers... before it has been paid by customers

3. Working capital D. are goods that have completed the manufacturing process but have
not yet been sold or distributed to the end user

E. tied up in keeping the business flowing throughout the year

4. Debtor
F. are unrestricted financial instruments which can be readily sold on a
stock exchange or bond exchange

G. is needed from time to take account of seasonal, cyclical,

5. Reserve unexpected,fluctuations in the business

H. to change , especially continuously and between one level or thing

and another
6. Inventory
I. tied up in keeping the business flowing throughout the year

J. minimum amount of cash that banks and other depository

institutions are required to keep on hand, and which may not be
7. Fluctuate used for lending or investing

K. is a term used in the accounting world to refer to a party that owes

money to a company or individual
8. Inventory
L. is an accounting term that refers to goods that are in various stages
of being made ready for sale, including:finished goods (that are
available to be sold); work-in-progress (meaning in the process of
being made);raw materials (to be used to produce more finished
9. Temporary goods)
working capital

10. Permanent
working capital
TEST 3 – UNIT 18 – THE MANANAGEMENT OF WORKING CAPITAL

V. ANSWERING QUESTION

1. How many types of working capital? What are its purposes?

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2. What are main tasks of financial manage in managing working capital?

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VI. TRANSLATION

1. The company has to pay interest and a percentage of the principal to the lender
whether it has made a profit or not.
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2. The primary purpose of working capital management is not only to make sure the
company always maintains sufficient cash flow to meet its short-term debt obligations
but also to ensure the most financially efficient operation of the company.
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3. If current assets are less than current liabilities, an entity has a working capital
deficiency, also called a working capital deficit.
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VII. TRANSLATION
1. Vốn lưu động là thước đo chuẩn mực về tỉ lệ thanh khoản, hiệu quả và tiềm lực tổng thể
của một công ty.
TEST 3 – UNIT 18 – THE MANANAGEMENT OF WORKING CAPITAL

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2. Một trong những lợi thế chính của việc xem xét tình hình vốn lưu động của một công ty
là có thể thấy trước nhiều khó khăn tiềm ẩn về tài chính có thể phát sinh.
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3. Quản lý tiền mặt tốt sẽ đảm bảo đầy đủ lượng tiền mặt có sẵn để đáp ứng các khoản nợ
hàng ngày của công ty và cũng đảm bảo khoản dự trữ nhỏ trong tay để giải quyết các
trường hợp bất ngờ.
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TEST 3 – UNIT 18 – THE MANANAGEMENT OF WORKING CAPITAL