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Working Capital Management Exam

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ABC Inventory Classification

A method of dividing inventory items into three groups--those with a relatively large dollar value but a small percentage of the total items, those with a small dollar value but a large percentage of the total times, and those items in between. The true annual interest rate paid on a loan. Also called the effective rate of a loan. A type of security (debt or preferred stock), that is a suitable investment for excess corporate funds The average number of days between the date when a credit sale is made and the date when the customer's payment is received. The proportion of the total receivables volume that is never collected by a business. A short-term debt instrument issued by a firm as part of a commercial transaction. Payment is guaranteed by a commercial bank. All costs associated with holding items in inventory for a given period of time. The net interval time between the collection of cash receipts from product sales and the cash payments for the company's various resources. This cycle is calculated by subtracting the payables deferral period from the operating cycle. A discount offered for early payment of an invoice. Short-term unsecured promissory notes issued by major corporations with good credit ratings. A minimum (absolute or average) balance that a bank requires a customer to keep in its checking account. This balance, which the bank can invest in interest-earning assets, compensates the bank for the services rendered to the customer. The use of decentralized collection centers and local banks to collect customer payments. This speeds up a firm's collections. The length of time a credit customer has to pay the account in full. The risk that a borrower will fail to make interest payments, principal payments, or both on a loan.

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Depository Transfer Check (DTC) Discounted Loan Factoring Field Warehouse Financing Agreement Float

An unsigned nonnegotiable check used to transfer funds from a local collection bank to a concentration bank. A loan in which the bank deducts the interest in advance at the time the loan is made The sale of a firm's accounts receivable to a financial institution known as a factor. A loan agreement in which the inventory being pledged as collateral is segregated from the company's other inventories and stored on its premises under the control of a field warehouse company. The difference between an account balance as shown on the bank's books and as shown on the firm's books. It represents the net effect of the delays in the payment of checks the firm writes and the collection of checks the firm receives. An inventory loan in which the lender receives a security interest or general claim on all of a company's inventory. Current assets affected by the seasonal or cyclical nature of the company's sales. The length of time required to produce and sell the product. An approach to inventory and production management in which required inventory items are supplied exactly as needed by production. An agreement that permits a firm to borrow funds up to a predetermined limit at any time during the life of the agreement. The ability of a firm to meet its cash obligations as they come due. A post office box maintained by a bank to speed up the collection of payments from customers. The interest rate at which banks in the eurocurrency market lend to each other.

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Annual Percentage Rate (APR) Auction Rate Securities Average Collection Period Bad-Debt Loss Ratio Banker's Acceptance

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Floating Lien Fluctuating Current Assets Inventory Conversion Period Just-InTime Inventory Management System Line of Credit Liquidity Lockbox

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Carrying Costs Cash Conversion Cycle

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Cash Discount Commercial Paper Compensating Balance

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Concentration Banking

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London InterBank Offer Rate (LIBOR) Matching Approach Misdirected Funds

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Credit Period Default Risk

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A financing plan in which the maturity structure of a firm's liabilities is made to correspond exactly to the life of its assets. Funds that cross an international border unintentionally.

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Multilateral Netting Operating Cycle

A process of international cash management designed to minimize the cost associated with misdirected funds. Includes the three primary activities of purchasing resources, producing the product, and distributing (selling) the product. It is calculated by summing the inventory conversion period and the receivables conversion period. All costs associated with placing and receiving an order. The length of time a firm a firm is able to deter payment on its resource purchases. Current assets held to meet the company's long-term minimum needs. A short-term borrowing arrangement with a financial institution in which a loan is secured by the borrower's accounts receivable. Similar to an ordinary check except that it does not require the signature of the person (or firm) on whose account it is being drawn. They are useful for firms that receive a large volume of payments of a fied amount each period. The lowest rate normally charged by banks on loans made to their most creditworthy business customers. A formal short-term credit obligation that states the amount to be paid and the due date. The length of time required to collect sales receipts. It is another name for the average collection period. The inventory level at which an order should be placed for replenishment of an item. An arrangement with a bank or securities dealer in which an investor acquires certain short-term securities subject to a commitment that the securities will be repurchased by the bank or securities dealer on a specified date. A binding agreement that commits a bank to make loans to a company up to a predetermined credit limit. To obtain this type of commitment from a bank, a company usually pays a commitment fee based on the unusual portion of the pledged funds.

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Seasonal Datings

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Credit terms under which the buyer of seasonal merchandise is encouraged to take delivery well before the peak sales period. Payment on the purchase is deferred until after the peak sales period. The cost of lost sales associated with the inability to fill orders from inventory. A loan agreement in which the inventory being pledged as collateral is stored in a bonded warehouse operated by a public warehousing company. A security agreement under which the borrower holds the inventory and proceeds from the sale of the inventory in trust for the lender. This is also known as floor planning. Variable production, administrative, and marketing costs per dollar of sales. The process of electronically sending funds from on bank to another through the Federal Reserve System or private bank wire systems. The difference between a firm's current assets and current liabilities and how their mix affects the risk versus return characteristics of the company. Used interchangeably with net working capital A payment system that uses a master disbursing account that services all other disbursing accounts. It is maintained in all but the master account until payments must me made.

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Stockout Costs Terminal Warehouse Financing Agreement Trust Receipt

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Ordering Costs Payables Deferral Period Permanent Current Assets Pledging Accounts Receivable Preauthorized Check (PAC)

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Variable Cost Ratio Wire Transfer Working Capital

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Prime Rate

ZeroBalance System

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Promissory Note Receivables Conversion Period Reorder Point Repurchase Agreement

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Revolving Credit Agreement

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