Working Capital Flashcards
what is working capital about
operating liquifity
What is operaitng liquidity
ability to pay your short term obligations i.e debts
how do you clculate workign capital
current assets - current liabiliiteis
give examples of current assets
cash
stock
debtors
give example of current liabliites
creditors
overdraft
do we want a positive or negative workign capital
positive
what does a negative working capital indicate
working capital deficiency
so more liablities
what do we want to turn into cash
stock
debtors
What are ways we can turn stock to cash
sales
not overstocking/destocking
JIT + Lean production
how can we avoid overstocking
do better markjet research to know much stock needed to have right amount to turnstock into cash quickly/efficienlty
how do sales turn stock to cash
people purchase so get money
how does JIT+Lean production help to change stock to cash
lets you hold the minimum amount of stock possible so you know at the bare minimum youll be able to sell and turn into cash
What are the three ways we can turn debtors into cash
reduce debtor days
debt factoring
stricter credit terms e.g late fee to deter late payment
explain how we can turn creditors into cash
increase creditors days
as by delyaing payments we hold more cash
Explain Why would we not want to increase creditor days by too much
could damge relationship with supplier
plus likely theyre supplying RM+copmonents vital to product
so if damages they coudl halt selling meaning producion halted and no sales as bs got nothing to sell
