Working Capital Management Flashcards
It is an assets, such as cash and equivalents, inventory, accounts receivable, and marketable securities, are resources a company owns that can be used up or converted into cash within a year.
Current Assets
are the amount of money a company owes, such as accounts payable, short-term loans, and accrued expenses, that are due for payment within a year.
Current Liabilities
is the difference between a company’s current assets and current liabilities. It is a financial measure, which calculates whether a company has enough liquid assets to pay its bills that will be due within a year.
Working Capital
Working Capital Formula
WCF = Current Assets - Current Liabilities
permanent capital requirements should be financed by long-term sources while temporary working capital requirements should be financed by short-term sources of financing.
Maturity-Matching Working Capital Financing Policy
some of the permanent capital requirements should be financed by short-term sources of financing,
Aggressive Working Capital Financing Policy
some of the temporary working capital requirements are financed by long-term sources of financing.
Conservative Working Capital Financing Policy
commonly involves monitoring cash flow, current assets, and current liabilities through ratio analysis of the key elements of operating expenses, including the working capital ratio, collection ratio, and inventor turnover ratio.
Working Capital Management
is calculated as current assets divided by current liabilities. It is a key indicator of a company’s financial health as it demonstrates its ability to meet its short- term financial obligations.
Current Ratio
Current Ratio Formula
CR = Current Assets / Current Liabilities
is a measure of how efficiently a company manages its accounts receivables.
Collection Ratio
is a measure of the number of times inventory is sold and replenished during a period. Generally, the higher the ratio, the better.
Inventory Turnover Ratio
