Chapter. Working capital

Size: px
Start display at page:

Download "Chapter. Working capital"

Transcription

1 Chapter 10 Working capital 1

2 10.1 Working capital Working capital is the capital available for conducting the day-to-day operations of the business and consists of current assets and current liabilities. Current assets Inventories Trade receivables Cash Short term investments Current liabilities Trade payables Bank overdrafts Working capital can be viewed as a whole but interest is usually focussed on the individual components such as inventories or trade receivables. Working capital is effectively the net current assets of a business. Working capital can either be: Positive Negative Current assets are greater than current liabilities Current assets are less than current liabilities Working capital management Working capital management is the administration of current assets and current liabilities. Effective management of working capital ensures that the organisation is maximising the benefits from net current assets by having an optimum level to meet working capital demands. It is difficult trying to achieve and maintain an optimum level of working capital for the organisation. For example having a large volume of inventories will have two effects, firstly there will never be stock outs, so therefore the customers are always satisfied, but secondly it means that money has been spent on acquiring the inventories, which is not generating any returns (i.e. inventories is a non productive asset), there are also additional costs of holding the inventories (i.e. warehouse space, insurance etc). The important aspect of working capital is to keep the levels of inventories, trade receivables, cash etc at a level which ensures customer goodwill but also keeps costs to the minimum. With trade payables, the longer the period of credit the better as this is a form of free credit, but again the goodwill with the supplier may suffer. 2

3 10.2 Working capital cycle (operating/trading/cash cycle) The working capital cycle measures the time between paying for goods supplied to you and the final receipt of cash to you from their sale. It is desirable to keep the cycle as short as possible as it increases the effectiveness of working capital. The diagram below shows how the cycle works. Cash Trade payables Money owing to suppliers as stock purchased on credit Trade receivables Customer owing money, as sales made on credit Inventories Sold on credit The table below shows how the activities of a business have an impact on the cash flow. TRADE PROCESS Inventories are purchased on credit which creates trade payables. The sale of inventories is made on credit which creates trade receivables. Trade payables need to be paid, and the cash is collected from the trade receivables. EFFECTS ON CASH Inventories bought on credit temporarily help with cash flow as there is no immediate to pay for these inventories. This means that there is no cash inflow even though inventory had been sold. The cash for the sold inventory will be received later. The cash has to be collected from the trade receivables and then paid to the trade payables otherwise there is a cash flow problem. 3

4 The control of working capital is ensuring that the company has enough cash in its bank. This will save on bank interest and charges on overdrafts. The company also needs to ensure that the levels of inventories and trade receivables is not too great, as this means funds are tied up in assets with no returns (known as the opportunity cost). The working capital cycle therefore should be kept to a minimum to ensure efficient and cost effective management. Working capital cycle for a trade Inventories days (time inventories are held before being sold) + Trade receivables days (how long the credit customers take to pay) - Trade payables days (how long the company takes to pay its suppliers) = Working capital cycle (in days) (Inventories / cost of sales) x 365 days + (Trade receivables / credit sales) x 365 days - (Trade payables / purchases) x 365 days = Working capital cycle (in days) Please note that for the trade payable days calculation, if information about credit purchases is not known then cost of sales is used instead. Example 10.1 (CIMA P7 Nov 06) DX had the following balances in its trial balance at 30 September 2006: Trial balance extract at 30 September 2006 $000 $000 Revenue 2,400 Cost of sales 1,400 Inventories 360 Trade receivables 290 Trade payables 190 Cash and cash equivalents 95 Calculate the length of DX s working capital cycle at 30 September

5 Working capital cycle in a manufacturing business Average time raw materials are in stock + Time taken to produce goods + Time taken by customers to pay for goods - Period of credit taken from suppliers = Working capital cycle (in days) (Raw materials / purchases) x 365 days + (WIP & finished goods / cost of sales) x 365 days + (Trade receivables / credit sales) x 365 days - (Trade payables / purchases) x 365 days = Working capital cycle (in days) Please note that for the trade payable days calculation, if information about credit purchases is not known then cost of sales is used instead. Example 10.2 (CIMA P7 May 05) AD, a manufacturing entity, has the following balances at 30 April 2005: Extract from financial statements: $000 Trade receivables 216 Trade payables 97 Revenue (all credit sales) 992 Cost of sales 898 Purchases in year 641 Inventories at 30 April 2005: Raw materials 111 Work in progress 63 Finished goods 102 Calculate AD s working capital cycle. 5

6 The shorter the cycle, the better it is for the company as it means: Inventories are moving though the organisation rapidly. Trade receivables are being collected quickly. The organisation is taking the maximum credit possible from suppliers. The shorter the cycle, the lower the company s reliance on external supplies of finance like bank overdrafts which is costly. Excessive working capital means too much money is invested in inventories and trade receivables. This represents lost interest or excessive interest paid and lost opportunities (the funds could be invested elsewhere and earn a higher return). The longer the working capital cycle, the more capital is required to finance it. Exam questions often ask how working capital can be managed effectively. To answer the question you need to discuss the overall working capital levels, and then the individual components like stock, debtors and creditors Overtrading When a company is trading large volumes of sales very quickly, it may also be generating large amounts of credit sales, and as a result large volume of trade receivables. It will also be purchasing large amounts of inventories on credit to maintain production at the same rate as sales and therefore have large volumes of trade payables. This will extend the working capital cycle which will have an adverse effect on cash flow. If the company doesn t have enough working capital, it will find it difficult to continue as there would be insufficient funds to meet all costs as they fall due. Overtrading occurs when a company has inadequate finance for working capital to support its level of trading. The company is growing rapidly and is trying to take on more business that its financial resources permit i.e. it is under-capitalised. Overtrading typically occurs in businesses which have just started to trade and where they may have suddenly begun to experience rapid sales growth. In this situation it is quite easy to place high importance on sales growth whilst neglecting to manage the working capital. 6

7 Symptoms of overtrading Remedies for overtrading Fast sales growth. Increasing trade payables. Increasing trade receivables. Fall in cash balances and increasing overdraft. Short-term solutions Speeding up collection from customers. Slowing down payment to suppliers. Maintaining lower inventory levels. Long term solutions Increase the capital by equity or longterm debt. Overtrading may result in insolvency which means a company has severe cash flow problems, and that a thriving company, which may look very profitable, is failing to meets its liabilities due to cash shortages. Over-capitalisation This is the opposite of over trading. It means a company has a large volume of inventories, trade receivables and cash balances but very few trade payables. The funds tied up could be invested more profitably elsewhere and so this an effective use of working capital. Differences in working capital for different industries Manufacturing Retail Service Inventories High volume of WIP and finished goods. Goods for re-sale only and usually low volume. Very low levels as most goods are bought in cash. None or very little inventories. Trade receivables High levels of trade receivables, as they tend be dependant on a few customers. Low to medium levels of trade payables. Usually low levels as services are paid for immediately. Trade payables Very high levels of trade payables due to huge purchases of inventory. Low levels of payables. 7

8 10.4 Types of working capital policy Within a business, funds are required to finance both non-current and current assets. The level of current assets fluctuates, although there tends to be an underlying level required for current assets. Assets m 100 Temporary fluctuating current assets 80 Permanent current assets (Core level of inventories, trade receivables etc) 50 Non current assets 0 Time A company must decide on a policy on how to finance its long and short-term assets. There are 3 types of policies that exist: Conservative policy Moderate policy Aggressive policy All the non current assets, permanent assets and some of the temporary current assets are financed by longterm finance. 90m long term debt and equity. 10m short term overdrafts and bank loans. All the non current assets and permanent asset are financed by long-term finance. The temporary fluctuating assets financed by short-term finance. 80m long term debt and equity. 20m short term overdrafts and bank loans. All the non current assets and part of permanent assets financed by long term. Remaining permanent assets all temporary fluctuating assets by short term. 65m long term debt and equity. 35m short term overdrafts and bank loans. 8

9 Summary of the three policies: Conservative policy Moderate policy Aggressive policy Long term finance Non current assets Permanent assets Temporary current assets Non current assets Permanent assets Non current assets Permanent assets Short term finance Temporary current assets Temporary current assets Permanent assets Temporary current assets With an aggressive working capital policy, a company will hold minimal levels of inventories in order to minimise costs. With a conservative working capital policy the company will hold large levels of inventories. The moderate policy is somewhere in between the conservative and aggressive. Short-term debt can be cheap, but it is also riskier than long-term finance since it must be continually renewed. Therefore with an aggressive policy, the company may report higher profits due to lower level of inventories, trade receivables and cheaper finance, but there is greater risk. Example 10.3 (CIMA P7 May 06) A conservative policy for financing working capital is one where short-term finance is used to fund: A B C D all of the fluctuating current assets, but no part of the permanent current assets. all of the fluctuating current assets and part of the permanent current assets. part of the fluctuating current assets and part of the permanent current assets. part of the fluctuating current assets, but no part of the permanent current assets. Example 10.4 (CIMA P7 Nov 05) An entity s working capital financing policy is to finance working capital using short-term financing to fund all the fluctuating current assets as well as some of the permanent part of the current assets. What is this policy an example of? 9

10 10.5 Working capital ratios Ratios are way of comparing financial values and quantities to improve our understanding. In particular they are used to asses the performance of a company. When analysing performance through the use of ratios it is important to use comparisons as a single ratio is meaningless. The use of ratios To compare results over a period of time To measure performance against other organisations To compare results with a target To compare against industry averages We shall now look at some of the working ratios in detail and explain how they can be interpreted. 1 Current ratio (CA) or working capital ratio CA = Current assets (times) Current liabilities The current ratio measures the short term solvency or liquidity; it shows the extent to which the claims of short-term creditors are covered by assets. The current ratio is essentially looking at the working capital of the company. Effective management of working capital ensures the organisation is running efficiently. This will eventually result in increased profitability and positive cash flows. Effective management of working capital involves low investment in non productive assets like trade receivables, inventory and current account bank balances. Also maximum use of free credit facilities like trade payables ensures efficient management of working capital. The normal current ratio is around 2:1 but this varies within different industries. Low current ratio may indicate insolvency. High ratio may indicate not maximising return on working capital. Valuation of inventories will have an impact on the current ratio, as will year end balances and seasonal fluctuations. 2 Quick ratio or acid test Quick ratio = Current assets less inventories (times) Current liabilities This ratio measures the immediate solvency of a business as it removes the inventories out of the equation, which is the item least representing cash, as it needs to be sold. Normal is around 1: 1 but this varies within different industries. 10

11 3 Trade payable days (turnover) Year end trade payables x 365 days Credit purchases (or cost of sales) This is the length of time taken to pay the suppliers. The ratio can also be calculated using cost of sales, as credit purchases are not usually stated in the financial statements. High trade payable day s is good as credit from suppliers represents free credit. If it s too high then there is a risk of the suppliers not extending credit in the future and may lose goodwill. High trade payable days may also indicate that the business has no cash to pay which indicates insolvency problems. 4 Trade receivable days (turnover) Year end trade receivables x 365 days Credit sales (or turnover) This is the average length of time taken by customers to pay. A long average collection means poor credit control and hence cash flow problems may occur. The normal stated credit period is 30 days for most industries. Changes in the ratio may be due to improving or worsening credit control. Major new customer pays fast or slow. Change in credit terms or early settlement discounts are offered to customers for early payment of invoices. 5 Inventory days Average inventory x 365 days Cost of sales Average inventory can be arrived by taking this year s and last year s inventory values and dividing by 2 - (Opening inventories + closing inventories) / 2. This ratio shows how long the inventory stays in the company before it is sold. The lower the ratio the more efficient the company is trading, but this may result in low levels of inventories to meet demand. A lengthening inventory period may indicate a slow down in trade and an excessive build up of inventories, resulting in additional costs. 6 Inventory turnover is the reciprocal of inventory days. Cost of sales x number of times Average inventory This shows how quickly the inventory is being sold. It shows the liquidity of inventories, the higher the ratio the quicker the inventory is sold. 11

12 Example 10.5 (CIMA P7 May 07) DR has the following balances under current assets and current liabilities: Current assets $ Current liabilities $ Inventory 50,000 Trade payables 88,000 Trade receivables 70,000 Interest payable 7,000 Bank 10,000 Calculate DR s quick ratio. Example 10.6 A company's current assets are less than its current liabilities. The company issues new shares at full market price. What will be the effect of this transaction upon the company s working capital and on its current ratio? Working capital Current ratio A Increase Increase B Constant Increase C Constant Decrease D Decrease Decrease Example 10.7 If the current ratio for a company is equal to its acid test (that is, the quick ratio), then: A B C D The current ratio must be less than one. Working capital is negative. Trade payables and overdraft are greater than trade payables plus inventories. The company does not carry any inventories 12

13 Example 10.8 The following are extracts of the Income Statement and Balance Sheet for Umar plc. Extract Balance Sheet at 30 June 20X2 20X Current assets Inventories Trade receivables Bank Current liabilities Trade payables Taxation Net current assets 56 - Extract Income Statement for the year ended 30 June 20X2 20X Turnover Opening inventory Purchases Closing inventory (84) (74) Gross profit Calculate and comment on the following ratios for Umar plc: 1 Current ratio 2 Quick ratio 3 Inventory days 4 Trade receivable days 5 Trade payable days 6 Working capital cycle in days 13

14 Example 10.9 Controlling working capital Explain how a manufacturing company could control its working capital levels, and the impact of the suggested control measures. Example Working capital mini Q s During January 20X4, Gazza Ltd made credit sales of 30,000, which have a 25% mark up. It also purchased 20,000 of inventories on credit. Calculate by how much the working capital will increase or decrease as a result of the above transactions? Tuffy Ltd has an annual turnover of 18m on which it earns a margin of 20%. All the sales and purchases are made on credit and it has a policy of maintaining the following levels of inventories, trade receivables and payables throughout the year. Inventory Trade receivable Trade payable 2 million 5 million 2.5 million Calculate Tuffy Ltd s cash cycle to the nearest day? 14

15 Key summary of chapter Working capital is the capital available for conducting the day-to-day operations of the business and consists of current assets and current liabilities. Working capital management is the administration of current assets and current liabilities. Effective management of working capital ensures that the organisation is maximising the benefits from net current assets by having an optimum level to meet working capital demands. TRADE PROCESS Inventories are purchased on credit which creates trade payables. The sale of inventories is made on credit which creates trade receivables. Trade payables need to be paid, and the cash is collected from the trade receivables. EFFECTS ON CASH Inventories bought on credit temporarily help with cash flow as there is no immediate to pay for these inventories. This means that there is no cash inflow even though inventory had been sold. The cash for the sold inventory will be received later. The cash has to be collected from the trade receivables and then paid to the trade payables otherwise there is a cash flow problem. Working capital cycle Inventories days (time inventories are held before being sold) + Trade receivables days (how long the credit customers take to pay) - Trade payables days (how long the company takes to pay its suppliers) = Working capital cycle (in days) (Inventories / cost of sales) x 365 days + (Trade receivables / credit sales) x 365 days - (Trade payables / purchases) x 365 days = Working capital cycle (in days) 15

16 Working capital cycle in a manufacturing business Average time raw materials are in stock + Time taken to produce goods + Time taken by customers to pay for goods - Period of credit taken from suppliers = Working capital cycle (in days) (Raw materials / purchases) x 365 days + (WIP & finished goods / cost of sales) x 365 days + (Trade receivables / credit sales) x 365 days - (Trade payables / purchases) x 365 days = Working capital cycle (in days) Overtrading occurs when a company has inadequate finance for working capital to support its level of trading. The company is growing rapidly and is trying to take on more business that its financial resources permit i.e. it is under-capitalised. Conservative policy Moderate policy Aggressive policy Long term finance Non current assets Permanent assets Temporary current assets Non current assets Permanent assets Non current assets Permanent assets Short term finance Temporary current assets Temporary current assets Permanent assets Temporary current assets 16

17 Working capital ratios Current ratio Current assets_ (number of times) Current liabilities Quick ratio Current assets inventory Current liabilities (number of times) Trade payable days Trade payables Cost of sales (or purchases) x 365 days Inventory days Inventory_ Cost of sales x 365 days Trade receivable days Trade receivable Sales x 365 days Inventory turnover Cost of sales x number of times Average inventory 17

18 Solutions to lecture examples 18

19 Chapter 10 Example 10.1 (CIMA P7 Nov 06) Inventories days (Inventories / cost of sales) x 365 days 93.9 days (360 / 1,400) x 365 days Trade receivable days (Trade receivables / credit sales) x 365 days 44.1 days (290 / 2,400) x 365 days Trade payable days (Trade payables / cost of sales) x 365 days 49.5 days (190 / 1,400) x 365 days Working capital cycle days Example 10.2 (CIMA P7 May 05) 1 Average time raw materials are in stock (Raw materials / purchases) x 365 days (111 / 641) x 365 = 63.2 days 2 Time taken to produce goods (Work in progress & finished goods / cost of sales) x 365 days ( / 898) x 365 = 67.1 days 3 Time taken by customers to pay for goods (Trade receivables / credit sales) x 365 days (216 / 992) x 365 = 79.5 days 4 Period of credit taken from suppliers (Trade payables / purchases) x 365 days (97 / 641) x 36 = 55.2 days Working capital cycle = = days 19

20 Example 10.3 (CIMA P7 May 06) The answer is D. Example 10.4 (CIMA P7 Nov 05) An aggressive policy. Example 10.5 (CIMA P7 May 07) Quick ratio = (current assets inventory) / current liabilities = (70, ,000) / (88, ,000) = 0.84 Example 10.6 The answer is A. The cash balance will increase, which means there is more working capital. The current ratio will increase as there are more current assets than current liabilities. Example 10.7 The answer is D. 20

21 Example Current ratio = 148 / 92 = 1.61 for 20X2 =130 / 102 = 1.27 for 20X1 The current ratio has increased, meaning that the organisation is more liquid. This is due to the fact that inventory and trade receivables have increased (which are non productive assets), and trade payables have been reduced. Although this may be better for the current ratio, it may not necessarily mean that the company is operating more efficiently. Has it increased it inventory piles because it anticipates higher sales and doesn t want to run out? Is it offering it s credit customers longer time to pay to increase sales? Why are they paying their suppliers quicker? Surely it would be better to take as long as possible? 2 Quick ratio = (148 84) / 92 = 0.70 for 20X2 = (130 74) / 102 = 0.55 for 20X1 In 20X2 current liabilities are better covered than 20X1. Bad management of working capital perhaps investigate further. 3 Inventory days = ( ) x 0.5 / 314 x 365 days = 91.8 days for 20X2 = ( ) x 0.5 / 302 x 365 days = 79.8 days for 20X1 Inventory is taking longer to sell; this could indicate poor inventory management. Why have inventory levels risen? Maybe the company is taking a cautious approach and wants to ensure enough is available to meet customer needs. But this is resulting in additional costs (unproductive asset) 4 Trade receivable days = 58 / 418 x 365 days = 50.6 days for 20X2 = 46 / 392 x 365 days = 42.8 days for 20X1 The collection of debts is worsening. Have the credit terms been extended to increase sales. Are there new customers who were not screened properly, resulting in delayed payments? Is there a delay in issuing invoices, lack of screening new customers? Are the year end figures representatives of the year? Perhaps there are seasonal fluctuations that need to be considered. Further investigation required as yet again this is an unproductive asset. 5 Trade payable days = 72 / 324 x 365 = 81.1 days for 20X2 = 82 / 318 x 365 = 94.1days for 20X1 (Alternatively could have used cost of sales) The suppliers are being paid quicker, which is good for relationship with the suppliers, but bad for cash flow purposes. It is still quite high and might jeopardise supplier relationship, discounts foregone etc. Trade credit is a free source of finance, and the company must try to maximise this. 21

22 6 Working capital cycle 20X2 20X1 Inventories days Plus Trade receivables days Minus Trade payables days (81.1) (94.1) Equals Working capital cycle (in days) In 20X2, the working capital cycle increased to 61.3 days from 28.5 days in 20X1. The company is taking longer to covert its inventories into cash. The management of inventories, receivables and payables has deteriorated, and this needs to be investigated and corrected. Example 10.9 Controlling working capital Some of the practical aspects that could be taken to achieve this include: 1 Reducing average raw material inventory holding period Ordering in small quantities to meet immediate production requirements, but could lose quantity discounts. Reducing the level of buffer stocks if these are held, but this will increase the risk of production being halted due to a stock out. Reducing the lead time allowed to suppliers, but could also increase the risk of a stock out. 2 Increase the period of credit taken from suppliers If the credit period is extended then the company may lose discounts from prompt payment. The financial effect of this should be calculated and compared with the cost of funds from other sources. If credit period is extended then goodwill may be lost, which is important in the event of goods being required urgently. 22

23 3 Reducing the time taken to produce goods and inventory holding period or finished inventories Efficiency leads to cost savings, therefore finding an efficient way to produce goods (i.e. in economic batch quantities), but the company must ensure than quality is not sacrificed. The savings arising from inventory holding reduction must be evaluated against the cost of inventory out, together with the effect on customer service. 4 Reducing the average debt collection period The administrative costs of speeding up debt collection and the effect on sales of reducing credit period allowed must be evaluated. Example Working capital mini Q s Firstly note the difference between a mark up and a margin Mark-up = 100% + 25% = 125% Profit = (25 / 125) Cost = 100 / 125 Margin = 75% + 25% = 100% Profit = (25 / 100) Cost = 75 / Effect on WC Increase in trade receivables 30,000 Increase in trade payables ( 20,000) Inventories increase due to purchases 20,000 Inventories Decrease due to sales (i.e. COS) {30,000 x 100 / 125} ( 24,000) Net effect on WC - increase 6,000 2 Cash cycle = inventory days + trade receivable days trade payable days Inventory days = Average inventory x 365 Cost of sales Cost of sales = 18 million x 0.8 = 14.4 million 23

24 Inventory days = 2 / 14.4 x 365 = 51 days Trade receivable days = Trade receivable / sales x 365 = 5 / 18 x 365 = 101 days Trade payable days = Trade payable / COS x 365 = 2.5m / 14.4 x 365 = (63) days Cash cycle = 89 days 89 days is the average time from the payment of a supplier to the receipt from a customer. 24

The Nature, Elements and Importance of Working Capital

The Nature, Elements and Importance of Working Capital C. WORKING CAPITAL MANAGEMENT 1. The nature, elements and importance of working capital 2. Management of inventories, accounts receivable, accounts payable and cash 3. Determining working capital needs

More information

CIMA F3 Financial Strategy

CIMA F3 Financial Strategy CIMA F3 Financial Strategy Determining policy in respect of investment and financing of working Capital Working Capital Investment Investment in working capital is mainly a decision of risk and reward.

More information

Chapter. Financial Analysis

Chapter. Financial Analysis Chapter 18 Financial Analysis Financial analysis The objective of financial statements is to provide information to all the users of these accounts to help them in their decision-making. Note that most

More information

CIMA F3 Course Notes. Chapter 3. Short term finance

CIMA F3 Course Notes. Chapter 3. Short term finance CIMA F3 Course Notes c Chapter 3 Short term finance Personal use only - not licensed for use on courses 31 1. Conservative, Aggressive and Matching strategies There are three over-riding approaches to

More information

Working Capital Concept & Animation

Working Capital Concept & Animation Working Capital Concept & Animation Meaning A measure of both a company's efficiency and its short-term financial health. The working capital is calculated as: Working Capital = Current Assets Current

More information

Many members will be in some way involved with the control of Working Capital and its influence upon business success.

Many members will be in some way involved with the control of Working Capital and its influence upon business success. Working Capital Control, Philip E Dunn Many members will be in some way involved with the control of Working Capital and its influence upon business success. Working capital is a key element in business

More information

Article - Working Capital Management By Bernard Vallely FCCA MBA Examiner Professional 1 Managerial Finance & Professional 2 Financial Management

Article - Working Capital Management By Bernard Vallely FCCA MBA Examiner Professional 1 Managerial Finance & Professional 2 Financial Management Article - Working Capital Management By Bernard Vallely FCCA MBA Examiner Professional 1 Managerial Finance & Professional 2 Financial Management Working Capital An organisation s working capital refers

More information

For our curriculum in Grade 12 we are going to use ratios to analyse the information available in the Income statement and the Balance sheet.

For our curriculum in Grade 12 we are going to use ratios to analyse the information available in the Income statement and the Balance sheet. SUBJECT: ACCOUNTING GRADE 12 CHAPTER: COMPANIES LESSON: ANALYSIS AND INTERPRETATION-RATIOS LESSON OVERVIEW (KNOWLEDGE AREAS) LESSON 1. Introduction 2. Analysing of financial statements and its purpose

More information

FINANCIAL MANAGEMENT (PART-7) WORKING CAPITAL MANAGEMENT PART 2

FINANCIAL MANAGEMENT (PART-7) WORKING CAPITAL MANAGEMENT PART 2 FINANCIAL MANAGEMENT (PART-7) WORKING CAPITAL MANAGEMENT PART 2 1. INTRODUCTION Dear Students, Welcome to the lecture series on financial management. Today in this lecture we shall cover the topic Working

More information

9. Short-Term Liquidity Analysis. Operating Cash Conversion Cycle

9. Short-Term Liquidity Analysis. Operating Cash Conversion Cycle 9. Short-Term Liquidity Analysis. Operating Cash Conversion Cycle 9.1 Current Assets and 9.1.1 Cash A firm should maintain as little cash as possible, because cash is a nonproductive asset. It earns no

More information

Working Capital Management & Short Term Financing

Working Capital Management & Short Term Financing CA BUSINESS SCHOOL POSTGRADUATE DIPLOMA IN BUSINESS & FINANCE SEMESTER 3: Financial Strategy Working Capital Management & Short Term Financing M B G Wimalarathna (FCA, FCMA, MCIM, FMAAT, MCPM)(MBA PIM/USJ)

More information

tutor2u Working Capital Introduction to the Management of Working Capital AS & A2 Business Studies PowerPoint Presentations 2005

tutor2u Working Capital Introduction to the Management of Working Capital AS & A2 Business Studies PowerPoint Presentations 2005 Working Capital Introduction to the Management of Working Capital AS & A2 Business Studies PowerPoint Presentations 2005 Introduction All businesses need cash to survive Cash is needed to: Invest in fixed

More information

Ratio Analysis. A) Liquidity Ratio : - 1) Current ratio = Current asset Current Liability

Ratio Analysis. A) Liquidity Ratio : - 1) Current ratio = Current asset Current Liability A) Liquidity Ratio : - Ratio Analysis 1) Current ratio = Current asset Current Liability 2) Quick ratio or Acid Test ratio = Quick Asset Quick liability Quick Asset = Current Asset Stock Quick Liability

More information

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT CHAPTER 9 WORKING CAPITAL MANAGEMENT Working capital is the long term fund required to run the day to day operations of the business. The company starts with cash. It buys raw materials, employs staff

More information

7 Management of Working Capital

7 Management of Working Capital 7 Management of Working Capital BASIC CONCEPTS AND FORMULAE 1. Working Capital Management Working Capital Management involves managing the balance between firm s shortterm assets and its short-term liabilities.

More information

CPD Spotlight Quiz September 2012. Working Capital

CPD Spotlight Quiz September 2012. Working Capital CPD Spotlight Quiz September 2012 Working Capital 1 What is working capital? This is a topic that has been the subject of debate for many years and will, no doubt, continue to be so. One response to the

More information

Notes. CIMA Paper P1. Performance Operations

Notes. CIMA Paper P1. Performance Operations Chapter 5 extract from our ExPress notes for use with the current video. A full set of P1 ExPress notes can be downloaded free of charge at www.. CIMA Paper P1 Performance Operations For exams in 2011

More information

ABOUT FINANCIAL RATIO ANALYSIS

ABOUT FINANCIAL RATIO ANALYSIS ABOUT FINANCIAL RATIO ANALYSIS Over the years, a great many financial analysis techniques have developed. They illustrate the relationship between values drawn from the balance sheet and income statement

More information

tutor2u Stock Control The Importance of Managing Stocks AS & A2 Business Studies PowerPoint Presentations 2005

tutor2u Stock Control The Importance of Managing Stocks AS & A2 Business Studies PowerPoint Presentations 2005 Stock Control The Importance of Managing Stocks AS & A2 Business Studies PowerPoint Presentations 2005 What Are Stocks? Three main categories of stocks Raw Materials Work in Progress Finished Goods Types

More information

Ratios and interpretation

Ratios and interpretation Unit Ratios and interpretation As we learnt in our earlier studies, accounting information is used to answer two key questions about a business: Is it making a profit? Are its assets sufficient to meet

More information

WORKING CAPITAL & CASH MANAGEMENT

WORKING CAPITAL & CASH MANAGEMENT WORKING CAPITAL & CASH MANAGEMENT STRATEGIES TO PROTECT THE FINANCIAL POSITION OF YOUR BUSINESS PRESENTATION BY HM Nhende 1 Overview of the Presentation Definition of Working Capital Components of Working

More information

Contribution 787 1,368 1,813 983. Taxable cash flow 682 1,253 1,688 858 Tax liabilities (205) (376) (506) (257)

Contribution 787 1,368 1,813 983. Taxable cash flow 682 1,253 1,688 858 Tax liabilities (205) (376) (506) (257) Answers Fundamentals Level Skills Module, Paper F9 Financial Management June 2012 Answers 1 (a) Calculation of net present value (NPV) As nominal after-tax cash flows are to be discounted, the nominal

More information

Management of Working Capital

Management of Working Capital 7 Management of Working Capital UNIT I : MEANING, CONCEPT AND POLICIES OF WORKING CAPITAL Learning Objectives After studying this chapter you will be able to: Discuss in detail about working capital management,

More information

CHAPTER 27 PRINCIPLES OF WORKING CAPITAL MANAGEMENT

CHAPTER 27 PRINCIPLES OF WORKING CAPITAL MANAGEMENT CHAPTER 27 PRINCIPLES OF WORKING CAPITAL MANAGEMENT Q.1 Explain the concept of working capital. Are gross and net concepts of working capital exclusive? Discuss. A.1 Working capital signifies money required

More information

FI3300 Corporation Finance

FI3300 Corporation Finance Learning Objectives FI3300 Corporation Finance Spring Semester 2010 Dr. Isabel Tkatch Assistant Professor of Finance Explain the objectives of financial statement analysis and its benefits for creditors,

More information

Current Assets. Current Liabilities. Quick Assets or Liquid Assets. Current Liabilities. 1. Liquidity Ratios 1 Current Ratio Formula.

Current Assets. Current Liabilities. Quick Assets or Liquid Assets. Current Liabilities. 1. Liquidity Ratios 1 Current Ratio Formula. 1. Liquidity Ratios 1 Current Ratio Current Assets Current Liabilities This ratio shows short-term financial soundness of the business. Higher ratio means better capacity to meet its current obligation.

More information

Fundamentals Level Skills Module, Paper F9

Fundamentals Level Skills Module, Paper F9 Answers Fundamentals Level Skills Module, Paper F9 Financial Management June 2008 Answers 1 (a) Calculation of weighted average cost of capital (WACC) Cost of equity Cost of equity using capital asset

More information

tutor2u Cash Management How and Why Businesses Need to Manage their Cash AS & A2 Business Studies PowerPoint Presentations 2005

tutor2u Cash Management How and Why Businesses Need to Manage their Cash AS & A2 Business Studies PowerPoint Presentations 2005 Cash Management How and Why Businesses Need to Manage their Cash AS & A2 Business Studies PowerPoint Presentations 2005 Importance of Cash (1) A business can exist for a while without making profits but

More information

Planning your cash flow

Planning your cash flow 5 Planning your cash flow PROFITS ARE NOT CASH 80 OPERATING CYCLE 81 CASH FLOW BUDGETING 82 TRADE DEBTORS 87 TRADING STOCK 89 OVERCOMING CASH FLOW PROBLEMS 91 MINIMUM CASH RESERVE 92 If the cash flowing

More information

FINANCIAL ACCOUNTING TOPIC: FINANCIAL ANALYSIS

FINANCIAL ACCOUNTING TOPIC: FINANCIAL ANALYSIS SYLLABUS Compulsory part Basic ratio analysis 1. State the general functions of accounting ratios. 2. Calculate and interpret the following ratios: a. working capital/current ratio, quick/liquid/acid test

More information

Chapter. Statement of Cash Flows For Single Company

Chapter. Statement of Cash Flows For Single Company Chapter 4 Statement of Cash Flows For Single Company 4.1 Single company statement of cash flows Statement of cash flows are primary financial statements and are required along side the income statement

More information

7 Management of Working Capital

7 Management of Working Capital 7 Management of Working Capital UNIT I : MEANING, CONCEPT AND POLICIES OF WORKING CAPITAL Learning Objectives After studying this chapter you will be able to: Discuss in detail about working capital management,

More information

Financial Ratios and Quality Indicators

Financial Ratios and Quality Indicators Financial Ratios and Quality Indicators From U.S. Small Business Administration Online Women's Business Center If you monitor the ratios on a regular basis you'll gain insight into how effectively you

More information

Financial analysis of customer accounts

Financial analysis of customer accounts 2 Financial analysis of customer accounts this chapter covers... The last chapter outlined the need for an organisation granting credit to obtain and analyse the financial accounts of: n a prospective

More information

Having cash on hand is costly since you either have to raise money initially (for example, by borrowing from a bank) or, if you retain cash out of

Having cash on hand is costly since you either have to raise money initially (for example, by borrowing from a bank) or, if you retain cash out of 1 Working capital refers to liquid funds used to purchase materials and pay workers. This is in contrast to long term capital such as buildings and machinery. Part of working capital management is cash

More information

FINANCIAL MANAGEMENT (PART-6) WORKING CAPITAL MANAGEMENT

FINANCIAL MANAGEMENT (PART-6) WORKING CAPITAL MANAGEMENT FINANCIAL MANAGEMENT (PART-6) WORKING CAPITAL MANAGEMENT 1. INTRODUCTION Dear Student Welcome to the lecture series on Financial Management. Today in this lecture we shall cover the topic Working Capital

More information

STATEMENT OF CASH FLOWS AND WORKING CAPITAL ANALYSIS

STATEMENT OF CASH FLOWS AND WORKING CAPITAL ANALYSIS C H A P T E R 1 0 STATEMENT OF CASH FLOWS AND WORKING CAPITAL ANALYSIS I N T R O D U C T I O N Historically, profit-oriented businesses have used the accrual basis of accounting in which the income statement,

More information

Fundamentals Level Skills Module, Paper F9

Fundamentals Level Skills Module, Paper F9 Answers Fundamentals Level Skills Module, Paper F9 Financial Management December 2008 Answers 1 (a) Rights issue price = 2 5 x 0 8 = $2 00 per share Theoretical ex rights price = ((2 50 x 4) + (1 x 2 00)/5=$2

More information

It is vital that the most important ratios are learned, and that intelligent comment can be made on the results.

It is vital that the most important ratios are learned, and that intelligent comment can be made on the results. Interpretation of Financial Statements By: Brendan Doyle, BA (Hons) in Accounting, MBS Accounting, MA, H. Dip. Ed. Acting Head of Department of Accounting & Business Computing in Athlone Institute of Technology,

More information

BACKGROUND KNOWLEDGE for Teachers and Students

BACKGROUND KNOWLEDGE for Teachers and Students Pathway: Business, Marketing, and Computer Education Lesson: BMM C6 4: Financial Statements and Reports Common Core State Standards for Mathematics: N.Q.2 Domain: Quantities Cluster: Reason quantitatively

More information

Chapter 9 Solutions to Problems

Chapter 9 Solutions to Problems Chapter 9 Solutions to Problems 1. a. Cash and cash equivalents are cash in hand and in banks, plus money market securities with maturities of 90 days or less. Accounts receivable are claims on customers

More information

Lecture 13 Working Capital Management and Credit Issues

Lecture 13 Working Capital Management and Credit Issues Lecture 13 - Working Capital Management Gross working capital: Net working capital: BASIC DEFINITIONS Total current assets. Net operating working capital (NOWC): Operating CA Operating CL = Current assets

More information

A guide to business cash flow management

A guide to business cash flow management A guide to business cash flow management Contents 01. Cash flow management 01 02. Practical steps to managing cash flow 04 03. Improving everyday cash flow 06 04. How to manage cash flow surpluses and

More information

Study Unit 6. Managing Current Assets

Study Unit 6. Managing Current Assets Study Unit 6 Managing Current Assets SU- 6.1 Working Capital What is working capital and types of capital policies What all is included in working capital? Net working capital = What is used to acquire

More information

Using Accounts to Interpret Performance

Using Accounts to Interpret Performance Using s to Interpret Performance ing information is used by stakeholders to judge the performance and efficiency of a business Different stakeholders will look for different things: STAKEHOLDER Shareholders

More information

the use of comparisons in

the use of comparisons in 01 technical the use of comparisons in RELEVANT to ACCA QUAlification paper F8 In the Paper F8 exam you may be asked to compute and interpret the key ratios used in analytical procedures at both the audit

More information

6. Show all your workings. icpar

6. Show all your workings. icpar CERTIFIED PUBLIC ACCOUNTANT FOUNDATION LEVEL 1 EXAMINATION F1.3: FINANCIAL ACCOUNTING MONDAY: 10 JUNE 2013 INSTRUCTIONS: 1. Time Allowed: 3 hours 15 minutes (15 minutes reading and 3 hours writing). 2.

More information

Chapter 18 Working Capital Management

Chapter 18 Working Capital Management Chapter 18 Working Capital Management Slide Contents Learning Objectives Principles Used in This Chapter 1. Working Capital Management and the Risk-Return Tradeoff 2. Working Capital Policy 3. Operating

More information

Managing Cash Flow: Practical ways to Improving Cash Flow & Optimise Funding

Managing Cash Flow: Practical ways to Improving Cash Flow & Optimise Funding Managing Cash Flow: Practical ways to Improving Cash Flow & Optimise Funding A Practical Guide to understanding Effective Financial Management Module 6 Brendan Binchy CEO ROCG Europe W: www.europe.rocg.com

More information

Teacher Resource Bank

Teacher Resource Bank Teacher Resource Bank GCE Accounting Other Guidance: ACCN2 Update on IAS ACCN3 Updates on IAS (July 2012). The Assessment and Qualifications Alliance (AQA) is a company limited by guarantee registered

More information

performance of a company?

performance of a company? How to deal with questions on assessing the performance of a company? (Relevant to ATE Paper 7 Advanced Accounting) Dr. M H Ho This article provides guidance for candidates in dealing with examination

More information

Easter School Accounting Grade 12. Interpretation of Financial Statements 27 March 2013

Easter School Accounting Grade 12. Interpretation of Financial Statements 27 March 2013 KEY CONCEPTS: In this session we will focus on: - Ratios X-PLANATION INTRODUCTION: Ratios For our curriculum in Grade 12 we are going to use ratios to analyse the information available in the Income Statement

More information

Paper F9. Financial Management. Fundamentals Pilot Paper Skills module. The Association of Chartered Certified Accountants

Paper F9. Financial Management. Fundamentals Pilot Paper Skills module. The Association of Chartered Certified Accountants Fundamentals Pilot Paper Skills module Financial Management Time allowed Reading and planning: Writing: 15 minutes 3 hours ALL FOUR questions are compulsory and MUST be attempted. Do NOT open this paper

More information

IGCSE Business Studies revision notes Finance Neil.elrick@tes.tp.edu.tw

IGCSE Business Studies revision notes Finance Neil.elrick@tes.tp.edu.tw IGCSE FINANCE REVISION NOTES Table of contents Table of contents... 2 SOURCES OF FINANCE... 3 CASH FLOW... 5 HOW TO CALCULATE THE CASH BALANCE... 5 HOW TO WORK OUT THE CASH AVAILABLE TO THE BUSINESS...

More information

Learning Objectives: Quick answer key: Question # Multiple Choice True/False. 14.1 Describe the important of accounting and financial information.

Learning Objectives: Quick answer key: Question # Multiple Choice True/False. 14.1 Describe the important of accounting and financial information. 0 Learning Objectives: 14.1 Describe the important of accounting and financial information. 14.2 Differentiate between managerial and financial accounting. 14.3 Identify the six steps of the accounting

More information

Ratios from the Statement of Financial Position

Ratios from the Statement of Financial Position For The Year Ended 31 March 2007 Ratios from the Statement of Financial Position Profitability Ratios Return on Sales Ratio (%) This is the difference between what a business takes in and what it spends

More information

Construction Economics & Finance. Module 6. Lecture-1

Construction Economics & Finance. Module 6. Lecture-1 Construction Economics & Finance Module 6 Lecture-1 Financial management: Financial management involves planning, allocation and control of financial resources of a company. Financial management is essential

More information

Topic 4 Working Capital Management. 1. Concept of Working Capital 2. Measuring Working Capital and Net Working Capital. 4.

Topic 4 Working Capital Management. 1. Concept of Working Capital 2. Measuring Working Capital and Net Working Capital. 4. Topic 4 Working Capital Management 1. Concept of Working Capital 2. Measuring Working Capital and Net Working Capital 3. Optimization i i of Working Capital 4. Applications 80 Learning objectives This

More information

FINANCIAL SKILLS FOR SMALL BUSINESS

FINANCIAL SKILLS FOR SMALL BUSINESS FINANCIAL SKILLS FOR SMALL BUSINESS A PROGRAMME PROUDLY BROUGHT TO YOU BY INSTITUTE OF BANKERS IN SOUTH AFRICA P O Box 64120 Marshalltown 2107 BANK SETA Thornhill Office Park, Block No.15, 94 Bekker Road,

More information

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT WORKING CAPITAL MANAGEMENT What is Working Capital Working capital management is the set of activities that are required to run day to day operations of the business to ensure that cash is adequate to

More information

Financial Statements Tutorial

Financial Statements Tutorial Financial Statement Review: Financial Statements Tutorial There are four major financial statements used to communicate information to external users (creditors, investors, suppliers, etc.) - 1. Balance

More information

ICAP GROUP S.A. FINANCIAL RATIOS EXPLANATION

ICAP GROUP S.A. FINANCIAL RATIOS EXPLANATION ICAP GROUP S.A. FINANCIAL RATIOS EXPLANATION OCTOBER 2006 Table of Contents 1. INTRODUCTION... 3 2. FINANCIAL RATIOS FOR COMPANIES (INDUSTRY - COMMERCE - SERVICES) 4 2.1 Profitability Ratios...4 2.2 Viability

More information

aggressive short-term financing policy amortization cash budget cash conversion cycle conservative short-term financing policy commercial paper

aggressive short-term financing policy amortization cash budget cash conversion cycle conservative short-term financing policy commercial paper aggressive short-term financing policy amortization cash budget cash conversion cycle commercial paper conservative short-term financing policy costly trade credit inventory blanket lien inventory conversion

More information

Financial Ratio Cheatsheet MyAccountingCourse.com PDF

Financial Ratio Cheatsheet MyAccountingCourse.com PDF Financial Ratio Cheatsheet MyAccountingCourse.com PDF Table of contents Liquidity Ratios Solvency Ratios Efficiency Ratios Profitability Ratios Market Prospect Ratios Coverage Ratios CPA Exam Ratios to

More information

Inventory period: The length of time required to produce and sell the product.

Inventory period: The length of time required to produce and sell the product. FIN 301 Class Notes Chapter 19: Short-Term Financial Planning Operating Cycle Purchasing resources from suppliers Producing the product Distributing the product to customers Create cash flows: Unsynchronized:

More information

Planning & Financing of Working Capital

Planning & Financing of Working Capital Planning & Financing of Working Capital Objectives of Working Capital Elements of Working Capital Sources of Working Capital Working Capital Control and Banking Policy Tondon Committees Recommendations

More information

Understanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions

Understanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions Understanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions Chapter 6 Working Capital Management Concept Check 6.1 1. What is the meaning of the terms working

More information

CHAPTER 9. Ratio Analysis

CHAPTER 9. Ratio Analysis CHAPTER 9 Ratio Analysis Introduction The analysis of the financial statements and interpretations of financial results of a particular period of operations with the help of 'ratio' is termed as "ratio

More information

Liquidity analysis: Length of cash cycle

Liquidity analysis: Length of cash cycle 2. Liquidity analysis: Length of cash cycle Operating cycle of a merchandising firm: number of days it takes to sell inventory + number of days until the resulting receivables are converted to cash Acquisition

More information

CASH FLOW STATEMENT. MODULE - 6A Analysis of Financial Statements. Cash Flow Statement. Notes

CASH FLOW STATEMENT. MODULE - 6A Analysis of Financial Statements. Cash Flow Statement. Notes MODULE - 6A Cash Flow Statement 30 CASH FLOW STATEMENT In the previous lesson, you have learnt various types of analysis of financial statements and its tools such as comparative statements, common size

More information

CHAPTER 21. Working Capital Management

CHAPTER 21. Working Capital Management CHAPTER 21 Working Capital Management 1 Topics in Chapter Alternative working capital policies Cash, inventory, and A/R management Accounts payable management Short-term financing policies Bank debt and

More information

(a) (i) Marking Scheme: 1 mark for definition and 1 mark for example.

(a) (i) Marking Scheme: 1 mark for definition and 1 mark for example. T A S M A N I A N Accounting C E R T I F I C A T E Subject Code ACC5C O F E D U C A T I O N Question 1 T A S M A N I A N Q U A L I F I C A T I O N S A U T H O R I T Y (a) (i) Marking Scheme: 1 mark for

More information

Institute of Chartered Accountant Ghana (ICAG) Paper 2.4 Financial Management

Institute of Chartered Accountant Ghana (ICAG) Paper 2.4 Financial Management Institute of Chartered Accountant Ghana (ICAG) Paper 2.4 Financial Management Final Mock Exam 1 Marking scheme and suggested solutions DO NOT TURN THIS PAGE UNTIL YOU HAVE COMPLETED THE MOCK EXAM ii Financial

More information

Working Capital Management Nature & Scope

Working Capital Management Nature & Scope Working Capital Management Nature & Scope Introduction & Definitions Components of Working Capital Significance of Working Capital Operating Cycle Types of Working Capital Net Vs Gross Working Capital

More information

Question Bank. Working Capital Management

Question Bank. Working Capital Management Question Bank Working Capital Management UNIT-1-Basic concepts and overview of working capital Q1. What is meant by Working Capital Management? What are the determinants of Working Capital Management needs

More information

Understanding Financial Statements. For Your Business

Understanding Financial Statements. For Your Business Understanding Financial Statements For Your Business Disclaimer The information provided is for informational purposes only, does not constitute legal advice or create an attorney-client relationship,

More information

It is concerned with decisions relating to current assets and current liabilities

It is concerned with decisions relating to current assets and current liabilities It is concerned with decisions relating to current assets and current liabilities Best Buy Co, NA s largest consumer electronics retailer, has performed extremely well over the past decade. Its stock sold

More information

Merchandise Accounts. Chapter 7 - Unit 14

Merchandise Accounts. Chapter 7 - Unit 14 Merchandise Accounts Chapter 7 - Unit 14 Merchandising... Merchandising... There are many types of companies out there Merchandising... There are many types of companies out there Service company - sells

More information

Financial Statement Ratio Analysis

Financial Statement Ratio Analysis Management Accounting 319 Financial Statement Ratio Analysis Financial statements as prepared by the accountant are documents containing much valuable information. Some of the information requires little

More information

6.3 PROFIT AND LOSS AND BALANCE SHEETS. Simple Financial Calculations. Analysing Performance - The Balance Sheet. Analysing Performance

6.3 PROFIT AND LOSS AND BALANCE SHEETS. Simple Financial Calculations. Analysing Performance - The Balance Sheet. Analysing Performance 63 COSTS AND COSTING 6 PROFIT AND LOSS AND BALANCE SHEETS Simple Financial Calculations Analysing Performance - The Balance Sheet Analysing Performance Analysing Financial Performance Profit And Loss Forecast

More information

Interpretation of Financial Statements

Interpretation of Financial Statements Interpretation of Financial Statements Author Noel O Brien, Formation 2 Accounting Framework Examiner. An important component of most introductory financial accounting programmes is the analysis and interpretation

More information

Financial Statements

Financial Statements Financial Statements The financial information forms the basis of financial planning, analysis & decision making for an organization or an individual. Financial information is needed to predict, compare

More information

Creating a Successful Financial Plan

Creating a Successful Financial Plan Creating a Successful Financial Plan Basic Financial Reports Balance Sheet - Estimates the firm s worth on a given date; built on the accounting equation: Assets = Liabilities + Owner s Equity Income Statement

More information

LIQUIDITY AND WORKING CAPITAL MANAGEMENT

LIQUIDITY AND WORKING CAPITAL MANAGEMENT LIQUIDITY AND WORKING CAPITAL MANAGEMENT 5 Liquidity and working capital management imply the short-term management of a firm, which are very vital for maintaining adequate but not excessive liquidity

More information

ACCOUNTING RATIOS I. MODULE - 6A Analysis of Financial Statements. Accounting Ratios - I. Notes

ACCOUNTING RATIOS I. MODULE - 6A Analysis of Financial Statements. Accounting Ratios - I. Notes MODULE - 6A Accounting Ratios - I 8 ACCOUNTING RATIOS I In the previous lesson, you have learnt the relationship between various items of the financial statements. You have also learnt various tools of

More information

Financing the Business

Financing the Business USQ UNIVERSITY OF SOUTHERN QUEENSLAND MBA - ACC5502 Accounting & Financial Management / S1 / 2015 Financing the Business M B G Wimalarathna [FCA, FCMA, MCIM, FMAAT, MCPM, (MBA PIM/USJ)] Financing through

More information

Working Capital Management

Working Capital Management Working Capital Management Helena SůvovS vová Guest lecture for the Czech University of Agriculture November,, 2009 1 Content of the lecture Working Capital Terminology Working Capital Decisions Cash Conversion

More information

Management of Working Capital

Management of Working Capital International Journal of Computer Science & Management Studies, Vol. 13, Issue 03, May 2013 Management of Working Capital Arti Rani Assistant Professor Kanya Mahavidhyalya, Kharkhoda, Sonepat, Haryana

More information

Article Accounting Terminology

Article Accounting Terminology Article Accounting Terminology Contents Page 1. Accounting Period... 4 2. Accounts Payable (Sundry Creditors)... 4 3. Accounts Receivable (Sundry Debtors)... 4 4. Assets... 4 5. Benchmarks... 4 6. B.O.S.

More information

Preparing Financial Statements

Preparing Financial Statements Preparing Financial Statements Understanding financial statements is essential to the success of a small business. They can be used as a roadmap to steer you in the right direction and help you avoid costly

More information

What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated?

What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated? What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? HOCK international - 2004 1 HOCK international - 2004 2 How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated? HOCK

More information

Report Description. Business Counts. Top 10 States (by Business Counts) Page 1 of 16

Report Description. Business Counts. Top 10 States (by Business Counts) Page 1 of 16 5-Year County-Level Financial Profile Industry Report Architectural Services (SIC Code: 8712) in Prince George County, Maryland Sales Range: $500,000 - $999,999 Date: 11/07/08 Report Description This 5-Year

More information

MCQ on Financial Management

MCQ on Financial Management MCQ on Financial Management 1. "Shareholder wealth" in a firm is represented by: a) the number of people employed in the firm. b) the book value of the firm's assets less the book value of its liabilities

More information

ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6E

ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6E CHAPTER 11 Creating a Successful Financial Plan The Importance of a Financial Plan Financial planning is essential to running a successful business and is not that difficult! Common mistake among business

More information

Working Capital Management

Working Capital Management Working Capital Management Gitman and Hennessey, Chapter 14 Spring 2004 14.1 Net Working Capital Fundamentals In 2002, current assets accounted for 31.7% of non-financial Canadian corporations total assets.

More information

Working Capital Management

Working Capital Management Working Capital Management Gitman and Hennessey, Chapter 14 Spring 2004 14.1 Net Working Capital Fundamentals In 2002, current assets accounted for 31.7% of non-financial Canadian corporations total assets.

More information

Section 3 Financial and stock market ratios

Section 3 Financial and stock market ratios Section 3 Financial and stock market ratios Introduction 41 Ratio calculation 42 Financial status ratios 43 Stock market ratios 45 Debt: short-term or long-term? 47 Summary 48 Problems 49 INTRODUCTION

More information

Managing Cash Flow. A guide to help you broaden your understanding of how to manage cash flow in a small business

Managing Cash Flow. A guide to help you broaden your understanding of how to manage cash flow in a small business Managing Cash Flow A guide to help you broaden your understanding of how to manage cash flow in a small business This guide looks at the key elements of cash flow and working capital and how its management

More information