Financial Management Name: I.D.: Financial Management Contents 1. Introduction 2. Working Capital concept 3. Importance of working capital 4. Components of working capital 5. Management working capital Introduction This paper will discuss the working capital in the following terms: Working Capital concept, Importance of working capital, Components of working capital, Management working capital. The researcher will define, analysis and provide examples to the terms 1. Working Capital concept The concept of gross working capital refers to the total value of current assets. In other words, gross working capital is the total amount available for financing of current assets. However, it does not …show more content…
Controlling the fund liquidities etc. 2. Importance of working capital Working capital is a vital part of a business and can provide the following advantages to a business: a. Investment is looking high return of his money in the business and there are many ratios regarding this analysis b. Working capital shows the return on the short term liabilities of the business and expenses of the business c. Financial statement principle has classified the current assets from cash, account receivables, inventories and this classification protect the business from most cash to less liquidities d. Business is more efficient with grate working capital e. Business has good relation in the working capital and in the financing terms and with good discount payment and methods of the inventories for suppliers f. Scale of the working capital shows in the following as good example: Cash …> Inventories…..> sales……> Collections …> Cash g. There are many rations assesses the working capital and benefit the business power in the …show more content…
Components of working capital There are four components of working capital as following 1. cash, 2. marketable securities, 3. receivables and 4. inventory The first of this component is the cash. It is important for the business. The meaning of cash is any currency, accepts by any one and issued by low of the country. It is also need to bay all the expenses of the business; salaries, water expenses, internet expenses, electrics etc. also purchases fix cost and car machines etc, the accounting entry is: No Accounts Debit Credit Cash Capital xxxxx xxxx Total xxxxx
Net working capital represents organization’s operating liquidity. In order to compute the net working capital, total current assets are divided from total current liabilities. When there is sufficient excess of current assets over current liabilities, an organization might be considered sufficiently liquid. Another ratio that helps in assessing the operating liquidity of as company is a current ratio. The ratio is calculated by dividing the total current assets over total current liabilities. When the current ratio is high, the organization has enough of current assets to pay for the liabilities. Yet, another mean of calculating the organization’s debt-paying ability is the debt ratio. To calculate the ratio, total liabilities are divided by total assets. The computation gives information on what proportion of organization’s assets is financed by a debt, and what is the entity’s ability to pay for current and long term liabilities. Lower debt ratio is better, because the low liabilities require low debt payments. To be able to lend money, an organization’s current ratio has to fall above a certain level, also the debt ratio cannot rise above a certain threshold. Otherwise, the entity will not be able to lend money or will have to pay high penalties. The following steps can be undertaken by a company to keep the debt ratio within normal
In order to determine the value of operations, and using proforma income statement and balance sheet statement, Cash flow statement was formulated for the next 5 years. The Account Receivables plus the Inventory minus the Account Payable was determined as Net Operating Working Assets. An organization cost of 0,000 was amortized over the 5-year period.
in business it need to be consider the most effective form. Capital is one of the factors to
One must understand that the integral core of a company rests in its accounting and financial areas. The departments’ need employees with an advanced knowledge and skill set to ensure the payment of supplies and accounting on the expenditure is correctly recorded. If the accounting desk presents inaccurate spending calculations on behalf of the company, it could result in spending more than what has actually been earned; this could lead to the company not only being unable to increase in revenue, but also experience loss. It is imperative that the management of the financial department is well informed and able to make decisions by taking into account the usage of every coin stated in the expenditures, and also to know the amount of revenue the company is making so that we can plan on better strategies to improve the revenues (Lu, Madu, Kuei & Winokur, 1994).
Measuring the liquidity through the current ratio, with 2.74 in the year 2009,0.74 above the standard, with the decline in the following year meeting exactly the standard at 2% in the year 2010, and a steep decline in the year 2011-2012 as compared to its standard.Resulting in the decline in firm’s ability to meet its day-to-day operating expenses. The current liabilities from 2009 to 2012 have increased by 27.03 billion whereas the investments in current assets have increased just by 26.09 billion, which causes the decline in the current ratio. To cope up with this problem the company should invest more in current assets and should reduce its current liabilities.
The working capital of Fairmount Energy as calculated using the current assets, and current liabilities given in the annual report of the year ended March 31st, 2009 is -$6,978,713. Given this information, an auditor can conclude that the company has a very low working capital. On March 31st, 2009, Fairmount Energy has a large amount of liabilities and a small amount of assets, which creates a working capital deficit. In addition, the annual report of the year ended March 31st, 2008 shows that the working capital of Fairmount Energy is -$13,897,716 which is an extremely low working
The following content provided will include information regarding Nikes Inc. cash management strategies, which will include more in depth information from the previous group paper. In addition, working capital recommendations will be provided to senior management base on next year’s in the pro-forma financial statements.
Thesis: Businesses deem financing necessary when they are just beginning, expanding, or recovering; Debt financing and equity financing have many advantages and disadvantages but also change the entire accounting method that is to be considered while running the business. Debt financing has both advantages and disadvantages. Debt financing is a business’ way to start up, expand, or recover by borrowing money from a person or company. The money borrowed has to be paid back along with the interest that was accrued during the length of time the loan was carried out. This option is great for company’s that do not want investors.
Higher the ratio of 2013 is effective utilization of working capital, but the 2014 decrease of 0.22 times but in year 2015 to increase of o.o7 times to be
The Purpose of Financial Statements The financial statements of a business are used to provide information about the status of the business, set performance targets and impose restrictions on the managers of the firm as well as provide an easier method for financial planning. The financial statements consist of the Profit and Loss Account, Balance Sheet and the Cash Flow Statement. There are four areas of information, which we can collect from a company's financial statements. They are: Ÿ Profitability - This information comes from the Profit and Loss account. Were we can compare this year's profit with the previous years.
Research on the Sources of Finance for a Business Firms sometimes need to raise finance for Working Capital and Capital Expenditure. Explain what each is and give examples. · Working Capital (or Revenue Expenditure) The working capital is made up of the current assets net of the current liabilities. It is vital to a business to have sufficient working capital to meet all its requirements. Many businesses have gone under, not because they were unprofitable, but because they suffered from shortages of working capital.
The management of cash is essential to the survival of any organization. Managing an organization’s financial operation requires knowledge of the economy and ways to maximize revenue. For any organization to operate on a daily basis adequate cash flow is required. Without cash management the organization will be unable to function because there is no cash readily available in case of inconsistencies in the market. Cash is also needed to keep the cycle of the company’s operations going.
Short term and long capital are needed for organizations to survive in today's economy. Organization's now more that ever need these different sources to diversify, expand or to keep processes more efficient thus keeping them at the head of the pack. Today's businesses and consumers demand for speed and quality of products.
The statement of the financial position is also known as balance sheet has shown the accounting equation, Assests = Liabilities + Equity. The statement of the financial position shows the current assets, liabilities and equity owned by a business during an accounting period.
Sources of finance are the different methods for a business to earn and obtain money. There are lots of ways to obtain money but two large basic sources of finance, which are the “owner’s capital” and “capital borrowed”. They are also called internal sources of finance and external sources of finance. In those sources, they are mainly divided in two groups, which are short-term sources of finance and long-term sources of finance.