ExamGecko
Question list
Search
Search

List of questions

Search

Question 174 - CSCP discussion

Report
Export

Which of the following conditions are most indicative of a company that is effectively managing its cash?

A.
Low accounts receivable, low inventory, high accounts payable
Answers
A.
Low accounts receivable, low inventory, high accounts payable
B.
High accounts receivable, low inventory, high accounts payable
Answers
B.
High accounts receivable, low inventory, high accounts payable
C.
Low accounts receivable , high inventory, low accounts payable
Answers
C.
Low accounts receivable , high inventory, low accounts payable
D.
High accounts receivable, high inventory, low accounts payable
Answers
D.
High accounts receivable, high inventory, low accounts payable
Suggested answer: A

Explanation:

The condition most indicative of a company that is effectively managing its cash is low accounts receivable, low inventory, and high accounts payable. Here's why:

Accounts Receivable (AR):

Low AR: Indicates that the company is collecting its receivables quickly, which means cash inflows are efficient, reducing the days sales outstanding (DSO).

Inventory:

Low Inventory: Implies effective inventory management. The company is not tying up excessive cash in inventory, reducing carrying costs and minimizing obsolescence risks.

Accounts Payable (AP):

High AP: Suggests that the company is taking full advantage of credit terms provided by suppliers, delaying cash outflows and preserving cash within the business for a longer period.

By effectively managing these three areas, a company can ensure a positive cash flow, maintain liquidity, and enhance its overall financial health.

Brigham, E. F., & Houston, J. F. (2018). Fundamentals of Financial Management.

Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2016). Corporate Finance: Core Principles and Applications.

asked 16/09/2024
Habte Manna
27 questions
User
Your answer:
0 comments
Sorted by

Leave a comment first