Certified Financial Management Specialist Practice Exam

Which of the following best describes short-term assets?

1. Investments held for over a year

2. Cash and receivables indicating operational efficiency

3. Long-term physical assets

4. Investment properties

The correct answer is: Cash and receivables indicating operational efficiency

Short-term assets refer to assets that are expected to be converted into cash or used up within one year or within a business's operating cycle, whichever is longer. This encompasses items such as cash, accounts receivable, and inventory. The correct choice highlights that cash and receivables play a crucial role in indicating a company’s operational efficiency. Cash is the most liquid asset, while receivables represent money owed to the company for goods or services delivered. Both of these assets are essential for day-to-day operations and financial health, as they reflect the company’s ability to meet short-term obligations and its effectiveness in converting sales into actual cash flow. The other options describe assets that do not fall within the short-term category. Investments held for over a year, long-term physical assets, and investment properties pertain to long-term assets that are not primarily intended for immediate or quick conversion to cash. Therefore, they do not accurately reflect the characteristics of short-term assets.