Question

Which of the following types of budget is prepared to assess the level of inventories, receivables, etc?

• A. Material Budget
• B. Profitability Budget
• C. Cash Budget
• D. Working Capital Budget

Answer 1

The correct option is D Working Capital Budget

Working capital budgeting commonly involves monitoring cash flow, assets, and liabilities through the ratio analysis of key elements of operating expenses, including the working capital ratio, collection ratio, and the inventory turnover ratio. Efficient working capital management helps maintain the smooth operation of the operating cycle (the minimum amount of time required to convert net current assets and liabilities into cash) and can also help to improve the company's earnings and profitability. Management of working capital includes inventory management and management of accounts receivables and accounts payables. The main objectives of working capital management include maintaining the working capital operating cycle and ensuring its ordered operation, minimizing the cost of capital spent on the working capital, and maximizing the return on current asset investments.