Repair is revenue expense but without cash, we can not repair our machines and without machines, our production may delay. We all know that both low level or over level of working capital is harmful for development of business.
We also calculate debtor or receivable conversion period.
This level is achieved by thinking and using the techniques of working capital management. Like investment in fixed capital decision, investment in working capital decision is also important. The working-capital formula assumes that a company really would liquidate its current assets to pay current liabilitieswhich is not always realistic considering some cash is always needed to meet payroll obligations and maintain operations.
If a company have some amount in the form of working capitalit means Company have liquid assets, with this money company can face every crises position in market. Business may be small or large. So, If Company have sufficient working capitalCompany can easily pay off the creditors and create his reputation in market.
It means only for 60 days, we need money to buy goods and paying other expenses. He can try to get short term loan or he can increase working capital by proper management of inventory and outstanding incomes and debtors.
According to this, we think to invest our money in working capital. But finance manger should not forget that the excess cash will not produce and earning and return on investment will decrease.
We have to calculate inventory conversion period. For estimating this, w analyze past income statements of company. But if in company, goods are purchased on cash basis, and sold on credit basis, it means, our earned money will receive after sometime and we require large amount of working capital for continuing our business.
It will tell us when our inventory cycle will complete.
As a result, working capital shortages cause many businesses to fail even though they may actually turn a profit.Working Capital Management Concepts Worksheet Working Capital Management Concepts Worksheet Amber Collins University of Phoenix May 31, Working Capital Management Concepts Worksheet Concept Application of Concept in the Simulation Reference to Concept in Reading Describe the firm's cash conversion cycle: Cash inflow "Most firms keep track of the average time it takes customers to.
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Working capital cycle refers to period that elapses between the payment for raw materials bought on credit (cash outflows) and the receipts of cash from finished goods sold on credit (cash inflows).
Definition Of Business And Working Capital Finance Essay. Working capital is a financial element which represents and referring to the operating liquidity available to an organization, business or other entity, including governmental entity.
Working capital is considered a part of operating capital along with fixed assets such as equipment and plants.
The working capital of a business enterprise is measured on the basis of its funds locked up in various current assets such as inventors, accounts receivables and cash & bank balance.
Definition of Working Capital–. This study not only includes the cash but also includes the study of demand for receivables, inventories, gross working capital and net working capital.
The concept of working capital, still have some controversies among various financial experts.Download