Working Capital

Q6) Explain the importance of efficeient wokring expectant Managment The term operative jacket refers to the amount of capital which is readily available to a telephoner. That is, on the job(p) capital is the difference between resources in cash or readily convertible into cash ( menstruum Assets) and organisational commitments for which cash give in short be required (Current Liabilities). Current Assets are resources which are in cash or will soon be converted into cash in the ordinary course of business. Current Liabilities are commitments which will soon require cash block in the ordinary course of business. Thus: working(a) CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES In a companys balance sheet components of working capital are describe under the following headings: Current Assets: Liquid Assets (cash and bank deposits) parentage Debtors and Receivables Current Liabilities: Bank Overdraft Creditors and Payables Other Short Term Liabilities The immensity of Good works Capital Management From a companys operate of view, excess working capital means operating inefficiencies. notes that is tied up in inventory or specie that customers still owe to the company cannot be used to ease up off any of the companys obligations.

So, if a company is not operating in the most efficient manner (slow collection), it will show up as an increase in the working capital. This can be seen by comparing the working capital from one period to another; slow collection may signal an underlying problem in the companys operations. Approaches to Working Capital Management The objective of working capital management is to curb the optimum balance of each of the working capital components. This includes make sure that funds are held as cash in bank deposits for as long as and in the largest amounts possible, thereby maximising the interest earned. However, such cash may to a greater extent appropriately be invested in other assets or in reducing other liabilities.... If you want to get a climb essay, order it on our website: Orderessay

Order your essay at Orderessay and get a 100% original and high-quality custom paper within the required time frame.