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All of the following are valid reasons for a business to hold cash and marketable securities, except to:
The three primary motives for holding cash are transaction demand, precautionary demand, and speculative demand.
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A company has total costs of $100,000, of which 40% is variable costs. What is the operating leverage?
Operating leverage is calculated as fixed costs divided by variable costs. If 40% of $100,000 are variable costs, the remaining $60,000 must be fixed costs. Thus, $60,000/$40,000=1.5.
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As a company becomes more conservative with respect to working capital policy, it would tend to have a(n):
An increase in the ratio of current assets to non-current assets would be indicative of an increasingly conservative working capital policy.
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Each of the following items is included when computing a firm's target cash conversion cycle, except the:
The cash conversion cycle does not include the cash discount period. Cash discounts would be considered as a component of receivables collections and payables deferrals.
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An increase in sales collections resulting from an increased cash discount for prompt payment would be expected to cause a:
An increase in sales collections would decrease the cash conversion cycle.
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The cash conversion cycle is the length of time from an initial expenditure for production to the date:
This is the definition and purpose of the cash conversion cycle which exists to quantify a firm's ability to generate cash flow.
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