Working Capital Control (Quick Revision) Flashcards
Define: Working Capital Control
Working capital control are the measures taken to ensure that the firm has sufficient day-to-day finance.
Fixed assists + working capital = a……… e…………………….
Assets employed
Stock - £6,000
Cash - £4,000
Debtors - £2,000
Current liabilities - £8,000
What is working capital?
Current assets - current liabilities = £4,000
Stock - £6,000
Cash - £4,000
Debtors - £2,000
Current liabilities - £8,000
What is the acid test ratio?
Current assets - stock / current liabilities
So…
£6,000 (stock) + £4,000 (cash) + £2,000 (debtors) = £12,000 (current assets)
£12,000 (current assets) - £6,000 (stock) = £6,000/£8,000 (current liabilities) = 0.75
Answer is 0.75
State four ways of improving a firm’s liquidity.
- Delay paying suppliers
- Chase debtors
- Borrow
- Make more cash sales
What is the Examiner’s note for Working Capital Control?
Credit control refers to how much credit customers are given and how effectively customers are chased up if they do not pay on time.
What is the Evaluation point for Working Capital Control?
A low acid test ratio may indicate liquidity problems, but this depends on how easy it is for the firm to raise finance quickly if it needs to.
