Working Capital

Question 0

What is the working capital cycle?

Answer 0

The time between paying for goods supplied to you and the final receipt of cash to you from their sale.
Short cycle increases working capital.

Made up of:

1. Cash - funds available
2. Creditors - accounts payable
3. Inventory - stock on hand
4. Debtors - accounts payable

Question 1

What is working capital?

Answer 1

The capital available to fund day to day operations of an entity.

Question 2

What is the liquidity ratio?

Answer 2

The capacity of the business to meet short term financial commitments as they become due.

Question 3

Define CURRENT RATIO (aka working capital ratio)

Answer 3

Shows whether business has enough current assets to meet it’s short term financial obligations

= current assets/ current liabilities

Question 4

What is a quick ratio?

Answer 4

Measures level of all assets that can be quickly convertible into cash and used to meet short term liabilities (excluded inventory)

= (current assets - inventory)/ current liabilities