WORKING CAPITAL Flashcards
What is working capital?
It is the capital needed to support the everyday operating activities.
Elements of Current assets?
- Inventory
- Receivables
- Cash
Net currents assets?
Current Assets less Current liabilities
Benefits of Working Capital?
- Holding stock
- Trade recievables
- Cash payments
What is working capital cycle?
It measures the time taken from the payment made to producers of raw materials to the payment received from customers.
What is permanent working capital?
It is the minimum level of working capital which is required all times.
What is fluctuating working capital?
It is the working capital required at certain times in the trade cycle.
What is Aggressive funding policy?
It uses long-term finance to fund non-current assets and uses short-term finance to fund all working capital requirements.
What is matching funding policy?
It is uses long term finance to fund non current assets and permanent working capital and uses short term finance to fund fluctuating working capital.
What is Conservative funding policy?
It uses long term finance to fund non current assets, permanent working capital and a portion of fluctuating working capital. It uses minimal short term finance.
Benefits of short term finance
- Flexible
- Low cost
What is business operating cycle?
It is the period between obtaining goods and services from suppliers and selling the finished goods to customers.
The 3 main elements of cash operating cycle?
- Average trade receivables period
- Average trade payables period
- Average inventory holding period
What is liquidity?
The ability to make cash payments when they fall due
Sources of liquidity?
- Cash flow from activities
- Holding liquid assets
- Access to committed borrowing facilities from Banks
