- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 3. Analyzing Balance Sheets
- Subject 5. Ratios and Common-Size Analysis
CFA Practice Question
Which of the following statement(s) is (are) false?
II. Working capital = Current assets - Current liabilities
III. In a classified balance sheet, current assets are listed in alphabetical order.
I. The operating cycle can be any 12-month period.
II. Working capital = Current assets - Current liabilities
III. In a classified balance sheet, current assets are listed in alphabetical order.
Correct Answer: III
II. Working capital is the excess of current assets over current liabilities. It is a measure of short-term debt-paying ability and measures a company's potential excess sources of cash over its upcoming uses of cash.
III. Current assets are shown in order of liquidity, the ability to convert them into cash.
I. The operating cycle is the time required to invest cash in inventory, sell the inventory, and collect the receivable. The operating cycle can vary, depending on the type of business and the industry.
II. Working capital is the excess of current assets over current liabilities. It is a measure of short-term debt-paying ability and measures a company's potential excess sources of cash over its upcoming uses of cash.
III. Current assets are shown in order of liquidity, the ability to convert them into cash.
User Contributed Comments 8
| User | Comment |
|---|---|
| Maxence | Can someone explain me what is the difference between the statement and the answer for II? |
| mtcfa | There is no difference. The explanation uses the word "over" but this should not be taken to mean "divided by." For simplicity it should say the difference between ca and cl. |
| push | why not II ? |
| NufaNka | Because II is true. |
| viannie | I got caught again! because I didn't read this question carefully!!! I read it as 'which is true; ;(( |
| johntan1979 | Unclassified balance sheet = No separation of current and long-term Allowed by US GAAP for certain industries e.g. banks, financial institutions. |
| ascruggs92 | I is true, a lot of companies do not use the calendar year as their Fiscal Year. In fact, the biggest company in the world, Apple, uses Sept. 30th as their year end. To me it would be wrong if it said it "has to be" any 12 month period, because an operating cycle can last more than a year |
| cschulz316 | Yes I is correct. An operating cycle CAN be any 12 month period, it doesn't have to be though. |