1. Define

Notes

1. Define net working capital.
Model answer: Net working capital = current assets – current liabilities. It measures the cushion of current assets available to meet current obligations. 2. What does “insolvency” mean in working capital management?
Model answer: Insolvency is when a firm is unable to pay its bills as they fall due. 3. State the trade-off between profitability and risk in working capital management.
Model answer: More current assets → lower risk but lower profitability; fewer current assets → higher profitability but higher risk of insolvency. 4. What is the cash conversion cycle (CCC) conceptually?
Model answer: The CCC measures the time between paying for inventory and collecting cash from customers. 5. What is the objective of inventory management?
Model answer: To maintain adequate inventory levels to meet demand while minimising the cost of holding inventory. 6. What is ABC inventory classification?
Model answer: A system that divides inventory into A, B, C groups in descending order of importance (by dollar investment) – A items get intensive monitoring, B less frequent reviews, C simple methods like the two-bin system. 7. What is a reorder point?
Model answer:...