Chapter 25: Capital Requirements

Question 1

Capital requirement

Answer 1

Company’s capital requirement is amount of capital needed to maintain necessary property/equipment as stated on the balance sheet

= value of all its assets

Question 2

Company balance sheet

Answer 2

Assets:
Capital goods
* non-current assets
* Current assets

Liabilities:
Sources of capital
* equity
* loan capital

Question 3

Non-current assets

Answer 3

AKA Fixed Assets
Company assets available for more than one year
e.g. buildings, machinery
is permenant in nature

Question 4

Current assets

Answer 4

Assets where invested capital will become available within one year
Are changable in nature: Stocks, products/semi-finished products, liquid funds

Question 5

Business processes

Answer 5

Capital requirements for actual production
Capital requirement increases graudually and suddenly drops when the customer pays

Question 6

Continuity

Answer 6

Company must innovate which uses capital. e.g. producing a new drug takes years vs computer update which takes a relatively short timeframe