What can be considered the firm's permanent working capital? Wages are paid for 1st and 2nd week in the 3rd week & for 3rd and 4th week in the next week. (D) 0.95 The size of fixed working capital is proportional to the magnitude and growth of the business. Annual operating cost including depreciation of 2,10,000 was 21,00,000. Common examples of current assets include cash, accounts receivable, and inventory. Fixed assets to proprietors fund = 1.25, Net Working Capital = 6,00,000. (A) 136.25 (A) How often account receivable received Working capital is the difference between a company's current assets and current liabilities. (B) 360 lakhs Side note: Permanent working capital for e-commerce businesses is generally lower than the permanent working capital needed to maintain an offline business. (A) Reduce Debt collection period 45 days For year 2019 Equity Share Capital is Rs 4,00,000 Preference Share Capital is Rs.60,000 10% debentures is Rs.1,00,000 and Share premium is 40,000. Add to that the fact that your sources of reliable and uninterrupted capital may very well change over time, and youll begin to understand why it can get a little tricky to pinpoint exactly how your business is operating with respect to meeting the required permanent working capital. (A) 18,000 This is calculated by deducting the current liabilities against current assets. (D) Cost of Sales (C) 3,76,000 (D) 4,51,370 Question 10. 2.4 = \(\frac{x}{y}\) Question 59. (B) long term Examples of current liabilities include accounts payable, short-term debt payments, or the current portion of deferred revenue. (A) 4.2 months What are the core current assets of Deelip Ltd? (C) 4,80,000 Which of the following is not correct with matching strategy? Which of the following would NOT improve the current ratio? (D) Aggressive Approach (B) Making greater use of long term finance and minimizing net short term asset. All assets financed with a 50 percent equity, 50 percent long-term debt mixture. (B) 10,00,000 Closing stock = ? Permanent Working Capital. Course Hero is not sponsored or endorsed by any college or university. A firm's permanent working capital refers to the: difference between fixed assets and current, maximum difference between current assets and current, portion of net working capital that is financed from long-term. (B) Cost of Production (A) Bills receivable (C) 90,000; 67,200 (C) Extra working capital Answer: = 49,29,313, Question 121. (B) Net working capital B. minimum difference between current assets and current liabilities. (C) Not change Question 141. = 315 Lakhs, Question 131. of days in year = 360 days A firm's permanent working capital refers to the: Portion of net working capital that is financed from long-term sources What happens to a firms whose uses of cash exceed its sources of cash during an accounting period? What are the aspects of working capital management? Three alternative current assets policies are under consideration 40%, 50% and 60% of projected sales. KT Ltd. opening stock was 2,50,000 and closing stock was 3,75,000. (D) 2,40,721 After all, a business cannot rely on paper profits to pay its billsthose bills need to be paid in cash readily in hand. (B) 0.403;0.453 Outstanding overheads will be shown in working capital statement at For example, say a company has $100,000 of current assets and $30,000 of current liabilities. Purchases = 4,20,000 Inventory is listed as a part of current assets. Answer: (B) If a company increases its current liabilities by 1,000 and simultaneously increases its inventories by 1,000, its quick ratio must fall. Therefore, companies that are using working capital inefficiently or needing extra capital upfront can boost cash flow by squeezing suppliers and customers. 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. (A) equity capital, preference capital, debentures, bonds and long term bank loans. The optimal level of working capital is that which provides a 2:1 ratio of current assets to current liabilities. (D) None of the above How much outstanding wages will be shown in working capital statement? In valuation, the focus is on noncash working capital. Stock velocity = 6 month Accounts payable are analyzed by the Current liabilities = 5,88,778 2,88,778 = 3,00,000 . Answer: (B) A higher current ratio is always preferred to a lower current ratio. 2,50,000 + Cost of production/purchase 3,75,000 = 9,75,000 (D) Fluctuating Working Capital (B) 2 (two) The loan requires 20 quarterly repayments at an interest rate of 8% p.a. Important note: Dont get confused by the name the dollar amount of your permanent working capital is not permanent. If you scale up business (and have higher operating costs), or if your business has more liabilities (debts to pay), youll have relatively higher permanent working capital. (D) All of the above Fluctuating Working Capital is also called as (C) Variable (C) 18,00,000 (B) 4,00,000 Creditors payment period, Question 108. (B) 43 days Question 47. 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. Simple enough, right? (D) positive and negative C. portion of net working capital that is financed from long-term sources. 0.2 \text { tone }}\)= 5,00,000 Drums, Question 147. (A) 28,750 Sales = 25,00,000 Answer: (A) Added to gross working capital (B) 20,000 (D) (B) & (C) is correct. (D) All of the above (B) How many time account receivable is collected Answer: Answer: Working days in year are taken as 300 days for budget year. 1 year = 365 days In deciding the appropriate level of current assets for the firm, management is confronted with (D) (B) & (C) is correct. It is mainly concerned with the fact that funds are not unnecessarily locked in current assets. Accounts receivable balances may lose value if a top customer files for bankruptcy. (B) Operating capital Answer: Calculate maximum permissible bank finance by Third Method of Tandon Committee norms. Well explain. (D) Both (A) and (C), Question 37. Assertion (A): Working capital refers to the gross working capital and represents the amount of funds invested in current assets. (D) 72,65,625 (D) 1,200 Answer: Average accounts payable are 80,000. (i) Reduction of manufacturing cycle. WORKING CAPITAL MANAGEMENT WORKING CAPITAL MANAGEMENT (WCM) involves managing the firm's current assets and current liabilities in order to achieve a balance between risks (liquidity) and returns (profitability). (A) Working Capital = Current Assets Current Liabilities From the following information calculate the responsiveness of ROCE for changes in current assets ie. (C) Current asset cycle Question 3. Quick Ratio Formula With Examples, Pros and Cons, Understanding Liquidity and How to Measure It, Gross Working Capital: Definition, Calculation, Example, Vs. Net. (D) 8,16,667 (B) 12,500 Calculation of cost of goods sold: Finished goods stock and WIP stock will appear in balance sheet and working capital of the company at (C) 200 (D) 12,500 Become is not a loan provider, loan broker, or other funding provider and does not provide actual loans or any kind of advice. Scroll down to learn what permanent capital is and understand why its so important for the financial health of your small business. (A) Factory Cost (A) 22,125 1. Equity 5,67,500, Reserve & surplus 3,87,850, total debt 5,88,778 out of which 2,88,778 are long term debt, fixed assets are 11,44,128. x = Annual Cost of Production 14,60,000, Question 96. To evolve suitable policies, procedures and reporting system for controlling the individual components of current assets. Which of the following assets is not a quick current asset? the amount of working capital that exceeds the regular working capital; reserve working capital is there for unexpected business expenses (like implementing a, the amount of capital invested in current assets. (C) 90 days (D) Activity Ratios (C) lower return and very low risk (A) Short term bills receivables Select the correct answer from the options given below. (B) Profitability Ratios Accounts receivable are analyzed by Opening and closing stock of SVK Ltd. is 1,20,000 & 1,80,000 respectively. Inventory turnover ratio evaluates: Answer: Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price. (A) Capital Structure /Leverage Ratios Raw material consumption= 6,48,000 Raw material purchase = 8,42,000 Annual cost of production = 14,42,000 Creditors = 75,000 (C) Operation working capital (D) 14,60,000 Working Capital Management Explained: How It Works, Current Ratio Explained With Formula and Examples. Since it changes as time goes on, measuring permanent working capital remains an ongoing process no matter how long youve been in business. C. portion of net working capital that is financed from long-term sources. portion of net working capital that is financed from long-term sources. (D) an example of the hedging approach to financing. (D) All of the above. (C) Both Statement I and Statement II are correct. Explain the important ratio that would be used in following situation: Answer: Creditors 17,55,000 (B) 5,50,000 An aggressive policy indicates Direct wages are 10% of selling price. Current assets are available within 12 months; current liabilities are due within 12 months. Answer: Course Hero is not sponsored or endorsed by any college or university. 55.625 = 151.875 x Gross working capital refers to the firm's investment in 'total current assets' needed to operate over a normal business cycle. Statement I: Maintaining adequate working capital is not just important in the short-term. (A) total assets minus fixed assets. Answer: Opening stock = 9,90,000 Net working capital 2,80,000 (A) varies with seasonal needs. Maintaining adequate working capital is not just important in the short-term. (C) Both (A) & (B). [1 Year = 360 days] To carry on a business, a certain minimum level of working capital is necessary on a continuous and uninterrupted basis. (A) 136.25 I. (A) 28,750, Tamilnadu Board Class 10 English Solutions, Tamilnadu Board Class 9 Science Solutions, Tamilnadu Board Class 9 Social Science Solutions, Tamilnadu Board Class 9 English Solutions, CS Executive Financial and Strategic Management MCQ, A Triumph of Surgery Extra Questions and Answers Class 10 English Footprints Without Feet, Notice Writing Class 11 Format, Examples, Topics, Exercises, Electricity Class 10 Extra Questions with Answers Science Chapter 12, A Roadside Stand Poem Summary line by line explanation in English by Robert Frost, Courses after BA | After BA What I Can do? (A) Which can be sold by the companies. What can be considered the firms permanent working capital? (A) Acid test days (C) 80,000 drums Answer: Rate of gross profit for export sale has to be taken 10%. Creditors = ? (B) Company has positive working capital, Question 5. (A) Annual Sales (A) Operation cycle (A) 0.405;0.435 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. (A) the company is able to pay-off its long-term liabilities. Prepaid expenses 37,500 D. amounts that must be held to meet debt covenants. The concept of working capital can also be explained through two angles. Yes, it is bad if a company's current liabilities balance exceeds its current asset balance. (A) 16,667 Finished goods conversion 29 days period Working Capita] = CA CL Debtors collection period 70 days NS Ltd. gives the following information: (B) Sales It makes 20% sales on cash basis. Gross profit ratio = 20%. Lending Express is excited to announce a new partnership with Seek Business Capital. Answer: Contingencies are .. (B) the firms investment in current assets. Managing working capital has a significant impact on the financial performance of firms. A company can improve its working capital by increasing its current assets. Working capital = 11,70,000 + 9,58150 + 26,65,000 + 55,12,000 + 6,00,000 17,55,000 14,95,000 = 76,55,750. Core current assets = 30 lakh S Ltd. gives the following information: (B) the company is able to select profitable projects. In mergers or very fast-paced companies, agreements can be missed or invoices can be processed incorrectly. Labour cost: 6 per unit Now is the time to get your businesss finances arranged so that you can clearly define your businesss permanent working capital, and ensure that you dont fall below it! Maximum permissible bank finance as per 1st method of Tandon committee norms is 3,18,75,000. Plainly put, permanent working capital is the minimum amount of working capital that is needed for a business to cover all current liabilities and also continue operating. (C) Long term funds (D) Working capital cycle Current assets = 15,44,128 11,44,128 = 4,00,000 (C) A companys quick ratio never exceed its current ratio. With the power of technology, Become is revolutionizing the business lending process, making it faster and easier than ever to get matched with the optimal lender. In theory, a business could become bankrupt even if it is profitable. Answer: Debtors 4,00,000 (B) Current ratio (D) Without figures it is impossible to tell whether working capital will increase or decrease Decrease in current assets means All figures are in thousands of dollars. The term "permanent working capital" refers to the bare minimum current assets necessary to keep a firm solvent. In this case, the: If the Statement of Sources and Uses of Cash shows a decrease in cash balance, which of the following changes might have. (C) 148 days, Question 98. x + 36,667 = 3,36,667 Answer: Net working capital refers to the difference between current assets and current (C) operational and financial. Answer: (C) (i) & (ii) (D) Trade-off between short-term versus long-term borrowing. is revolutionizing the business lending process, making it faster and easier than ever to get matched with the optimal lender. Question 148. (D) Both ratios are expressed in number of times receivables are collected per year 5,40,000 and Debtors at the end of year is ? Its true, fixed working capital will change as your business grows. Closing stock = 10,10,000 (C) 29,00,000 (ii) Increase of credit period allowed by creditors to the extent that do not affect the production. (D) All of the above, Question 11. Answer: The interest rate is 10% on all debts. (D) Overtone Answer: (A) 18,000, Question 106. (B) 32,830 Working capital management is primarily concerned with the management and financing of: Answer: Answer: (D) Fluctuating Working Capital, Question 25. (A) Liquidity D) firm uses no equity in its capital structure. (D) 20,625 Therefore, a company's working capital may change simply based on forces outside of its control. (D) money market instrument and long term securities. C) The firm sells $10 million of marketable securities. Working Capital = 232.5 96.25 = 136.25. Initial Working Capital - Answer: (B) greater risk and lower liquidity From the following information calculate the net working capital: 1 year = 360 days. (D) 14,60,000 (B) Increase of credit period allowed by creditors to the extent that do not affect the production. (C) Raw material consumed (1) Nature and size of business (B) Fluctuating (C) Which are held by the companies to pay-off current liabilities. 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