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Working Capital Management Interview Questions & Answers - Learning Mode
COOLINTERVIEW.COM FINANCIAL MANAGEMENT INTERVIEW QUESTIONS WORKING CAPITAL MANAGEMENT INTERVIEW QUESTIONS QUESTIONS & ANSWERS - LEARNING MODE

Working Capital Management Interview Questions & Answers - Learning Mode

Working capital is the difference between the inflow and outflow of funds. In other words, it is the net cash inflow. It is defined as the excess of current assets over current liabilities and provisions. In other words it is "net current assets or net working capital".The primary purpose of working capital management is to make sure the company always maintains sufficient cash flow to meet its short-term operating costs and short-term debt obligations.

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Working Capital Management Interview Questions & Answers - Learning Mode
Try Working Capital Management Interview Questions & Answers - Exam Mode
Question: What is permanent working capital?

Answer: Permanent working capital is the minimum amount of current assets which is needed to conduct a business even during the dullest season of the year. It is the amount of fund required to produce the goods and services which is necessary to satisfy demand at a particular point. It represents the current assets which are necessary to satisfy demand at a particular point. Source: CoolInterview.com
Question: What are the factors affecting Fixed Capital requirement?

Answer: 1.Nature of business
2.Types of Products
3.Size of the firms
4.Diversity of production lines
5.Method of handling production
6.Method of acquiring the fixed assets Source: CoolInterview.com
Question: State the principles of working capital management.

Answer: a) Principle of Risk Variation
b) Principle of Cost of Capital
c) Principle of Equity Position
d) Principle of Maturity of Payment Source: CoolInterview.com
Question: State the cash management models.

Answer: Certain models have been developed to manage the cash. These models assist in determining the optimum cash to be held by the enterprise. The models are:
a) Baumol Model
b) Miller- orr Model
c) Orgler's Model Source: CoolInterview.com
Question: What are the characteristics of permanent working capital?

Answer: a) It is classified on the basis of time factor.
b) It constantly changes from one asset to another and continues to remain in the business process.
c) Its size increases with the growth of business operations. Source: CoolInterview.com
Question: State the tools of inventory management.

Answer: i) Fixation of levels.
ii) ABC analysis
iii) EOQ
iv) Perpetual inventory system
v) VED analysis
vi) FSN analysis
vii) Periodical inventory evaluation
Source: CoolInterview.com
Question: Explain the five C's of credit rating.

Answer: 1. Character:- Character refers to the temperament of the customer. It is to be judged whether the customer is honest and is prompt in paying the dues that he had undertaken to pay.
2. Capacity:- Capacity refers to the ability of the customer to pay back the purchase price. This can be measured by conducting a detailed investigation of his dealings, his past actions, his possessions, his business methods etc.
3. Capital:- Capital refers to the financial soundness of the customers. This can Source: CoolInterview.com
Question: What is the difference between Fixed and Working Capital?

Answer: Fixed capital investments represent the acquisition and maintenance of long-term assets. A fixed capital investment can be tangible asset,such as a building, or an intangible asset, such as an intellectual property. Working capital refers to the deployment of financial resources in the day-to-day business operations. Source: CoolInterview.com
Question: State the characteristics that a working capital term loan should possess.

Answer: A working capital term loan should possess specific characteristics as laid down below:
a) WCTL is a shortage "long- term surplus" or net working capital (NWC) in a unit that a bank chooses to fund.
b) It is a long- term need of the unit that is met by the bank through its short- term portfolios.
c) It must be repaid in a prescribed maximum number of instalments.
d) It is a sort of "once- in- a life- time" loan. Source: CoolInterview.com
Question: What are the factors affecting Working Capital requirements?

Answer: 1. Size Of Business
2. Nature Of Business
3. Storage Time Or Processing Period
4. Credit Period
5. Seasonal Requirement
6. Potential Growth Or Expansion Of Business
7. Changes In Price Level Source: CoolInterview.com
Question: What is full service factoring?

Answer: This method is one of the popular factoring service practised in India. Under this system, factor, provides finance, maintains sales ledger, undertakes credit collection, offers protection against bad debts and offer consultancy services. Source: CoolInterview.com
Question: What is negative working capital?

Answer: Negative working capital emerges when current liabilities exceed current assets. Such a situation is not absolutely theoretical, and occurs when a firm is nearing a crisis of some magnitude. Source: CoolInterview.com
Question: What is working capital?

Answer: Working capital may be regarded as lifeblood of business. Working capital is the difference between the inflow and outflow of funds. It is also referred as the excess of current assets over current liabilities and provisions. Working capital is a measure of both a company's efficiency and its short-term financial health. Source: CoolInterview.com
Question: What is agency factoring?

Answer: This is a unique type of factoring arrangement in which the risks and responsibility of clients and factors are clearly defined. Client takes the responsibility of maintaining the sales ledger administration and collection of debts from the customers. Factor assumes the responsibility of down payment/ pre- payment facility to the client and protect the client against bad debts. Source: CoolInterview.com
Question: What is Balance Sheet working capital?

Answer: The balance sheet working capital is one which is calculated from the items appearing in the balance sheet. Gross working capital, which is represented by the excess of current assets, and net working capital, which is represented by the excess of current assets over current liabilities, are examples of the balance sheet working capital. Source: CoolInterview.com
Question: Explain the short- term forecasting methods.

Answer: Two most commonly used short- term cash forecasting are:
1. Receipts and Disbursement Method:- Cash flows and outflows are maintained by companies on continuous basis. The prime aim of receipts and disbursements forecasts is to summarise these flows during a predetermined period. This method is favoured to keep a close control over cash.
2. Adjusted Net Income Method:- This method of cash forecasting involves the tracing of working capital flows. It is sometimes called the sources and uses Source: CoolInterview.com
Question: State the features of factoring.

Answer: 1. Client can get 80 percent of the invoice amount from the factor after the factoring agreement.
2. Clients shift responsibility of credit collection from the customers.
3. The responsibility of maintaining credit sales ledger vests with the factor.
4. The client will have easy access to know the details of credit sales.
5. Client has to pay service charges in addition to the interest and funded amount to the factor. Source: CoolInterview.com
Question: What is gross working capital? What are its advantages?

Answer: Gross working capital is the amount of funds invested in the various components of current assets. This concept has the following advantages:
a) Gross working capital provides the correct amount of working capital at the right time.
b) It enables a firm to realize the greatest return on its investment.
c) It helps in the fixation of various areas of financial responsibility.
d) It enables a firm to plan and control funds and to maximise the returns on investment. Source: CoolInterview.com
Question: What is inventory management?

Answer: It refers to stock, raw materials, components, spares or work progress maintained in an organisation to have continuous production and sales. Inventory management is one of the component of working capital management. It involves the process of providing continuous flow of raw materials to production department.
Source: CoolInterview.com
Question: What is long- term cash forecasting? Also state its uses.

Answer: Long- term cash forecasts are prepared to give an idea of the company's financial requirements. Once a company has developed a long- term cash forecast, it can be used to evaluate the impact of new product development or plant acquisition on the firm's financial position; three, five or more years in future. The major uses of the long- term cash forecasts are:
1. It indicates a company's future financial needs, especially for its working capital requirements.
2. It helps in eva Source: CoolInterview.com

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