CFA Level I · CFA Level I Exam · Working Capital and Liquidity
A company's treasurer is classifying the firm's sources of liquidity. Which of the following is most likely a primary source of liquidity?
Cash balances held in operating accounts are the best example of a primary source of liquidity. Primary sources are readily available in the ordinary course of business. Debt renegotiation and asset sales are secondary sources, since they may signal financial difficulty and alter the firm's structure or operations.
- ACash balances held in operating accountsCorrect
- BRenegotiation of debt agreements
- CSale of a manufacturing plant
Explanation
Primary sources of liquidity are the resources used in the normal course of business, such as cash balances, short-term funds, and cash flow management. Renegotiating debt and selling assets are secondary sources, because they can change the company's financial structure or operations.
Did you get it right without looking?
One question tells you little. A timed set on Working Capital and Liquidity shows your real accuracy, how long you take and where you lose marks.
More Working Capital and Liquidity questions
- Two companies in the same industry have identical current ratios of 1.8. Company X holds most of its current assets in cash and receivables,…
- Which of the following is most likely a feature of effective liquidity management at a corporate issuer?
- A company uses 200,000 of cash to repay a short-term bank loan. Before the repayment, its current ratio was 0.80. Which of the following is …
- Compared with a peer, a company has a much longer cash conversion cycle driven by a high days of sales outstanding. This is most likely to i…
- A company's treasurer is considering stretching accounts payable well beyond the agreed terms to conserve cash. The most likely risk of this…
- A company has annual sales of 3,650,000 and cost of goods sold of 2,555,000. Average receivables are 300,000, average inventory is 350,000 a…