Learning Unit 3 Flashcards
1
Q
What is net working capital
A
Current assets - current liabilities
2
Q
What are the objectives of working capital management?
A
1- smooth operating cycle
2- optimize the level of working capital in order to find a level of investment in working capital where risks and returns are balanced
3 - minimize interest rate cost
3
Q
What is over trading?
A
Overtrading means growing your business too quickly, to the detriment of the net working capital
4
Q
Explain the nominal vs effe release rates
A
Effective interest rates - the actual interest rate earned, assuming annual compounding
Nominal interest rate- any rate that is paid more than once a year
5
Q
Calculate an effective annual rate
A
(1+(quoted nominal rate/m))^2 - 1
Where m is the number of compounding periods in a year
