a firm's permanent working capital refers to the

(B) Cash (D) 70 days What are the aspects of working capital management? Bills receivable & Bills payable were 60,000 and 36,667 respectively. 0.75x = 81,79,313 (D) Debtors less provision for bad and doubtful debts (D) 12,00,000, Question 110. Say a company has accumulated $1 million in cash due to its previous years retained earnings. (B) 43 days Which of the following is correct formula to calculate credit period availed? (A) operational and servicing (B) long term (C) operational and financial (D) positive and negative Answer: (C) operational and financial Question 9. of days in year = 360 days | Best Courses & High Paying Jobs after Bachelor of Arts, MCQ Questions for Class 9 Science with Answers PDF Download Chapter Wise, Stopping By Woods On A Snowy Evening Poem Summary in English and Hindi by Robert Frost, Receivable Management Financial Management MCQ, Indian Woman Essay In Hindi, Old Man at the Bridge Summary Analysis and Explanation by Ernest Hemingway, Paragraph On Happiest Day Of My Life: A Personal Experience, Diary Entry for Class 10 CBSE Format, Topics, Examples, Samples, Landscape of The Soul Summary in English by Nathalie Trouveroy. Answer: (C) Inventory and prepaid expense are included in the numerator of the current ratio, but not in the numerator of the acid-test ratio. Equity share capital 18,00,000 When the current ratio is 2:5, and the amount of current liabilities is 25,000, what is the amount of current assets? Question 57. (A) (i) &(iii) Answer: Stock 3,15,000 (A) 6,25,000 Calculate the number of drums to be manufactured. Answer: (A) Reserve Working Capital 57,41,813 = 0.75 (x 32,50,000) Answer: (B) higher risk and poor liquidity Answer: Statement I: Maintaining adequate working capital is not just important in the short-term. Well, consider the fact that permanent working capital actually isnt permanent! Answer: (C) 3,42,857 9,75000 = Total Overheads \(\frac{30}{360}\) (D) (1), (2), (3) and (4) (D) 18.67% (B) Sales. Increase in working capital indicates outflow of cash and decrease in working capital indicates inflow of cash. Total wages for the year of Rakshit Ltd., a listed company are 64,80,000 out of which 2,40,000 are paid in cash immediately after they became due. (C) 12,89,625 (B) Deducted from gross working capital The company can avoid taking on debt when unnecessary or expensive, and the company can strive to get the best credit terms available. Accounts receivable balances may lose value if a top customer files for bankruptcy. (A) 22,125 (A) Borrow short term to finance additional fixed assets. (B) Net working capital These Working Capital multiple choice questions are useful for MBA, BBA, B Com, M Com, PGDM, BA, MA, UGC NET, SET, MPSC, UPSC and Ph D exams. (B) 32,500 (A) 5,40,000 Further export sale has to be made 10096 from 90% for the purpose of calculation of gross profit. Which of the following is relevant while planning for working capital requirement? Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price. 9,90,000 + x 10,10,000 = 20,00,000 Permanent working capital: Also known as "fixed working capital," this is the minimum amount of funds that must be in cash or current assets, required to cover all current liabilities. Answer: Stock = 5,60,000 (C) 148 days (B) Increase of credit period allowed by creditors to the extent that do not affect the production. Maximum permissible bank finance as per first method = 75% of Initial Working Capital - The overarching goal of working capital is to understand whether a company will be able to cover all of these debts with the short-term assets it already has on hand. From the following data calculate finished goods conversion period for the years 2019 & 2020. How Does Business Age Affect Business Loan Eligibility? It might indicate that the business has too much inventory or is not investing its excess cash. In Current Ratio. Stock or inventory in an organization means Inventory turnover ratio evaluates: (B) Accounts receivable. (C) 315 Iakhs (B) (ii) & (iii) (i) Reduction of manufacturing cycle. (B) an example of low risk-low (potential) profitability asset financing. All components of working capital can be found a company's balance sheet, though a company may not have use for all elements of working capital discussed below. = 0.75 (1,09,05,750 32,50,000) (A) Temporary Which of the following is correct formula to calculate debtors collection period? Working capital is also a measure of a companys operational efficiency and short-term financial health. (D) 90,000 = 75% (20,93,250 3,73,750) (D) 1,200 D. amounts that must be held to meet debt covenants. Answer: (D) Credit period (D) Conservative current assets policy (B) Pay-back period Answer: (B) 30 days Where current assets refer to the sum of cash, accounts receivable, raw material and finished goods inventory. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. Question 93. The term working capital management refers to the efforts of the management towards the effective management of current assets and current liabilities. (C) 13.33 Course Hero is not sponsored or endorsed by any college or university. Question 2. (C) Coverage ratio (D) Trade-off between short-term versus long-term borrowing. (A) Collection period+Inventory holding period Creditor Payment Period (B) Over trading, Question 30. Gross profit ratio = 20%. Answer: (D) None of the above Working Capital Cycle. (A) average number of days it takes to pay a supplier fixed assets. (A) To maintain the optimum levels of investment in current assets. The author accepts no responsibility for any consequences whatsoever arising from the use of such information. Conversion of work in a process into finished goods. x = Creditors payment period = 47, Question 113. Answer: 1. Answer: Working capital in this case is Only Assertions is correct Only Reason is correct (C) is the amount of current assets required to meet a firms long-term minimum needs. come in many different shapes with varying rates, but finding the right one for your businesss needs doesnt need to waste your time or energy. \(2.8=\frac{28,00,000}{x}\) (A) Trade-off between profitability and risk. However, there are some downsides to the calculation that make the metric sometimes misleading. Three alternative current assets policies are under consideration 40%, 50% and 60% of projected sales. Answer: (1) Short Term Advances Regardless of the exact dollar amount, what remains true is that if your businesss capital were to fall below the fixed working capital requirement its. This means the company has $70,000 at its disposal in the short term if it needs to raise money for a specific reason. Answer: x + 60,000 = 6,25,000 This is. You borrow $200,000. Therefore, it is clear from the above explanation that Option A, Option C, and Option D are not accurate, and hence, Option B is the most suitable choice. (C) [75% of (Current Assets Core Current Assets)] Current Liabilities. Question 3. Therefore, at the end of 2021, Microsoft's working capital metric was $96.7 billion. To carry on a business, a certain minimum level of working capital is necessary on a continuous and uninterrupted basis. Both figures can found in the publicly disclosed financial statements for public companies, though this information may not be readily available for private companies. (A) higher return and risk Liquid Ratio = ? K Ltd. had sales last year of 26,50,000, including cash sales of 2,50,000. Similarly to how the A/C can help you get through the heat, temporary working capital can help your business survive during seasonal fluxes. (B) the company currently is unable to meet its short-term liabilities equivalent to borrowing at an annual interest rate of: Annual Interest Rate = 1 / (0.99) ^ 52 = 68.6%. (D) All of the above maximum difference between current assets and current liabilities. (B) Current Liabilities, Question 67. (D) All of the above (B) long term Question 19. (C) Not change Cost of Production = ? (D) All of the above (C) 40 days If current assets are 1,09,05,750 and current liabilities are 32,50,000 then maximum permissible bank finance as per second method of Tandon Committee norms is For example, Microsoft's working capital of $96.7 billion is greater than its current liabilities. This includes saving cash, building higher inventory reserves, prepaying expenses especially if it results in a cash discount, or closely considering which customers to extend credit to (in an attempt to reduce its bad debt write-offs). (B) 1.92 (A) 57,41,813 Working capital =. (A) equity capital, preference capital, debentures, bonds and long term bank loans. (D) 28,462 (C) 20,562 (C) Overcoming (D) 2,40,721 Answer: (B) 3,66,333 (B) Non-cash items are not considered Accounts receivable are analyzed by Note: 1 Year = 365 days (A) greater liquidity and lower risk Working capital is the difference between a company's current assets and current liabilities. (A) The current ratio includes inventory and quick ratio does not. It is computed by deducting CL(current liabilities) from CA(current assets). (C) III Calculation of cost of goods sold: Because of defaults, the receivables prove. Lag in payment of wages 1 month. (A) Bills receivable (C) Decrease in working capital, Question 73. All figures are in thousands of dollars. (A) Depreciation, Question 75. (D) 1,10,00,726 Tandon Committee Report on Working Capital relates to norms for . From the following information calculate the responsiveness of ROCE for changes in current assets ie. (D) current assets. Working capital management is a strategy that requires monitoring a company's current assets and liabilities to ensure its efficient operation. Answer: At its most basic level, it consists of just the assets necessary . Which of the following will be considered while calculating working capital? The CTC Ltd. is attempting to establish a current assets policy. (B) greater risk and lower liquidity (A) 57,41,813 Business loans come in many different shapes with varying rates, but finding the right one for your businesss needs doesnt need to waste your time or energy. By only looking at immediate debts and offsetting them with the most liquid of assets, a company can better understand what sort of liquidity it has in the near future. There has been a plethora of research works about entrepreneurship in the last two decades since enterprises are now treated as one the major driving forces, if not the most influential, of global economy as a whole. Disclaimer: The information contained in this article is provided for informational purposes only, should not be construed as legal advice on any subject matter and should not be relied upon as such. Its current liability are 1,60,000 which includes provision for tax 60,000. (A) 30 days (C) Operating cycle, Question 13. (C) 6,45,250 Temporary working capital usually fluctuates over the permanent working capital. (D) Fixed working capital Question 53. Answer: (B) 15,66,667 Current assets Eire 5,20,000 What amount of principal is repaid in the first three months? (A) higher liquidity and poor risk (D) Variable working capital (D) A new personal computer for the office, Question 56. A firm's permanent working capital refers to the: A. difference between current assets and current liabilities. (A) 28,246 (C) 36,40,000 Opening Raw Material + Purchases Closing Raw Material = Material Consumed (C) operational and financial. C. portion of net working capital that is financed from long-term sources. (C) Average collection period (A) total assets minus fixed assets. a business has to carry all the time irrespective of the level of manufacturing/marketing operations. Working days in year are taken as 300 days for budget year. (B) Prepaid expenses 5. (B) Cash sales (B) 94 days given below (C) 5,65,000 A conservative policy implies One production process cycle is completed in two month. What can be considered the firms permanent working capital? This included cash, cash equivalents, short-term investments, accounts receivable, inventory, and other current assets. (D) None of the above Lag in payment g of overheads is 30 days. (D) Company has no working capital (A) the amount utilized at the time of contingencies. It is understood that a current ratio of .. for a manufacturing firm implies that the firm has an optimum amount of working capital. An aggressive policy produces B. minimum difference between current assets and current liabilities. (A) 4,20,000, Question 104. (C) Stock A firm's permanent working capital refers to the: Multiple Choice difference between fixed assets and current assets. Well explain. In other words, efficient working capital management means ensuring sufficient liquidity in the . (A) Gross Working Capital In fact, there are several kinds of working capital that a small business owner should know about, including: If youre still not entirely clear on what the differences are between permanent and temporary working capital, keep reading. (D) 120 days (4) Production policy Answer: (C) 75,65,750 Question 50. Question 81. The ratios of cost to selling price are What Is the Formula for Calculating Profit Margins? .. refers to the difference between current asset and current liabilities. Gross working capital refers to What can be considered the firm's permanent working capital. (C) 80,000 drums (C) (i) & (ii) (B) Cash sales, Question 74. (B) includes fixed assets. Positive working capital indicates that a company can fund its current operations and invest in future activities and growth. Answer: Question 45. (B) 43 days To be clear, that number will change as your company grows and as your assets and liabilities change. A Ltd. financial statement shows the following data: How much outstanding wages will be shown in working capital statement? If the company were to invest all $1 million at once, it could find itself with insufficient current assets to pay for its current liabilities. (C) 29 days A firm's permanent working capital refers to the: portion of net working capital that is financed from long-term sources. (Assume a 360 days year.) If current assets are 1,09,05,750 and current liabilities are 32,50,000 then maximum permissible bank finance as per first method of Tandon Committee norms is Short-term assets financed with equity. (D) [80% of (Current Assets Core Current Assets)] Current Liabilities Fixed assets are 6,00,000 and the firm plans to maintain a 50% debt-to-assets ratio. On a similar note, assets can quickly become devalued. (iii) Reduction in credit period given to customers. x = Current liabilities = 10,00,000, Question 109. (A) 4,25,00,000 But do you know what it is? Answer: 1,20,000 + Purchases 1,80,000 = 3,60,000 (A) 47 days Answer: C. Variable manufacturing overheads = 2 Fixed manufacturing overheads = 1 Lag in payment of overheads = one month (A) 69,75,000 Answer: Still unclear? Answer: Which of the following assets is not a quick current asset? Current assets are those assets Answer: 57,41,813 = 0.75x 24,37,500 This is calculated by deducting the current liabilities against current assets. These include white papers, government data, original reporting, and interviews with industry experts. (A) 136.25 (D) 4,60,000 Closing balance of debtors are 9,468. Answer: (B) Profitability Ratios (D) Business cycle (B) Increase of credit period allowed by creditors to the extent that do not affect the production. Maximum permissible bank finance as per Tandon Committee norms is 3,15,000. Answer: (A) where the firm relies heavily on short term bank finance. A similar financial metric called the quick ratio measures a ratio of current assets to current liabilities. Question 58. (C) the average number of days it takes to collect an account. Answer: (1) Nature and size of business Answer: Your business REALLY needs it. (A) As average collection period increases (decreases) the accounts receivable turnover decreases (increases). (C) Both Statement I and Statement II are correct. Outstanding Overheads = Total Overheads = \(\times \frac{\text { Lag in payment of overheads }}{360}\) Sales 46.80 lakh (25% cash sales and balance on credit): 78,000 units portion of net working capital that is financed from long-term sources. Answer: Current assets & current liabilities of Deelip Ltd. are 9,60,000 and 3,60,000 respectively. Closing stock = 10,10,000 The size of fixed working capital is proportional to the magnitude and growth of the business. Working capital is also known (A) Collection period+Inventory holding period Creditor Payment Period, Question 71. Working capital is important because it is necessary for businesses to remain solvent. (B) Issue long-term debt to buy inventory (C) 75,75,000 Maximum permissible bank finance as per first method of Tandon Committee norms was 57,41,813 while current liabilities are reported at 32,50,000. A) The firm issues $1 million of short-term debt and invests the proceeds in inventory. Which of the following is/are method of maximum permissible bank finance as recommended by the Tandon Committee? x = Accounts Payable = 3,36,667 (C) 52,29,813 (D) Data given is not sufficient (A) Current capital or circulating capital, Question 61. If company calculates working capital on cash cost basis then debtors are Although the value of an increase in the interest tax shield may be positive, firms are most apt to restrict (3) Credit policy (A) the company has no current assets at all Question 8. Your goal is to accumulate $60,000 in seven years' time. Answer: (D) includes accounts payable. Current liabilities are simply all debts a company owes or will owe within the next twelve months. (C) Fixed Assets (C) lower return and very low risk Following details are available for Pratik Ltd. PWC(permanent working capital) implies a WCs part where a minimum amount of CA is needed(locked up) so that the firm or company can run its business operations smoothly for a year and is computed by the minimum difference between CA and CL. If a firm has 100 in inventories, a current ratio equal to 1.2, and a quick ratio equal to 1.1, what is the firms Net Working Capital?

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