Working capital is the amount of
cash and near cash assets
Net working capital equals
current assets-current liabilities
The level of net working capital is effected by all but which of the following
Retained earnings
A base level of inventory, cash , marketable securities, prepaid expenses and accounts receivable is best described as
Permanent current assets
The trade off of holding cash versus higher returning fixed assets is called
liquidity versus profitability trade off
Working capital includes all but which of the following
Accounts payable
A firm that uses short term financing to finance most of it assets all else equal is
using the aggressive approach
An optimal level of current assets is reached when
optimal levels of cash, inventory and amounts receivable are reached
With respect to debt financing, which of the following statement is most accurate from perspective of the firm seeking funds
short term loans are more risky and usually less expensive than long term loans
Which of the following financing approaches is the most aggressive financing approach
Financing temporary current assets, permanent current assets, some fixed long term assets with short term debt
The assets associated with short term operating activities such as cash, accounts receivable and inventory are also called
Working Capital
Working capital assets are generally
short term
Some level of gross working capital is "permanent" in that
There is always a minimum level of current assets at any given point in time
Which of the following best defines the maturity matching principle associated with financing working capital needs
Match the maturity source of funds with that of the uses of funds
Financing permanent working capital need with long term financing tends to match financing with uses of funds and reduces the chances of illiquid but long term financing has two disadvantages
Equity financing has higher cost than debt, long term debt usually has a high interest rate than short term
An aggressive working capital policy would have which of the following rates
low current ratio and higher average ROE
an aggressive working capital financing policy would likely have
high proportion of assets financed by short term financing
Which of the following statements about net working capital is true
high level pf net working capital is associated with relatively low levels of short term financing
Which of the following statements about temporary current assets is true
temporary current assets reflect a seasonal increase in inventory, accounts receivable, and other current asset accounts
The business should select the level of working capital or current assets that
maximizes the value of the firm