Working capital is the most important of all the financial concepts a business owner should understand. By definition, it is the money needed to sustain the day-to-day operations of a business (Staff, 2013). When you first start a business, you will be required to have a sufficient working capital in order to keep the business running smoothly. Conversely, lack of working capital may cause businesses to fail. Working capital can come from net income, long-term loans, sale of capital assets and fund contributed by investors, but many business owners use their personal financial resources to fund their businesses. Working capital also gives confidence on a business. Having sufficient of it makes it easy to attract investors or get business loans. Working capital is really important in business because it helps the business to continue its operations. However, it is not only important to maintain your capital but also business owners should know how to manage it. Another concept related to this is the working capital management. According to Sunday (2011), working capital management is very essential concept in a business. It maintains the financial stability of the business and keeps the smooth running of the business. Working capital management also ensures the cash flow of a business. This allows the business to cover all its liabilities and obligations in time and it also prevents the risk of bankruptcy. A successful working capital management helps the business to stay solvent and ensure that the business has good working capital stability. Working capital management includes managing inventories, accounts receivable and payable, and cash. In a small and medium scale enterprise, it is very important to apply this concept becau...
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...he articles are informative enough but there are still missing details. Some missing information are the other factors that affect the working capital, additional ways to improve working capital, other ways of determining the needs of working capital and the most effective way of maintaining working capital stability. Readers can learn a lot from these articles but they may still want to find out about some information like sources of working capital, how to boost working capital, operating cycle of the business and working capital cycle.
Working capital is indeed very significant in all business. Strong working capital management is necessary for all business. Good accounting record should be maintained by the financial manager to avoid conflicts. As a young financial manager, you should learn the basics about working capital for it will lead you to success.
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
After going through the appendix 1 briefly it shows that Australian Hardware’s business has been successful from years and having growth in business every year. According to the appendix business is underperforming from last 3 months which makes the owner of the company to assess the problems. Cause of this underperformance company owners wants to identify the areas need to be improved so that the
Chapter 19 of Liberty, Equality, and Power, asks what the most significant ways in which the ongoing struggle between capital and labor reshaped American society during the late 19th century (Murrin, 523). In response, one of the most important contributions was the introduction of new technologies utilized primarily in factories. This in turn lead to the revolutionizing of production lines, and corporations. This domino effect continued on to spur the birth of unions in the United States, who organized rebellions against corporate power still used today. Finally during this time women underwent a transformation of their civil rights, as well as their role in society.
The form of the additional capital funding (i.e. equity vs loan) has no tangible impact on SJKII and Fosun’s voting power since Fosun and SJKII are the majority shareholders and the debtors.
The business model that New Century created helped the company grow very quickly as the mortgage industry was not very regulated and there were a lot of access to capital markets. Since New Century was able to lend to subprime borrowers, at a higher interest rate, while financing their operations with the lower interest rate, it helped the company grow. But, these factors were also risky for the company due to the fact that interest rates could rise, home sales decline, or if a less creditworthy borrower defaults on their loan. Also, if interest rates were to increase, regulations became stricter, or if they could not move the loans off their balance sheets, New Century faced the risk of not obtaining financing to continue funding current and
Financial statements are a vital factor of any business organization; they show where a company’s money came from, where it went, and where it is now, according to Securities and Exchange Commission website (2008). In addition, four main financial statements consist of the balance sheet, income statement, cash flow statement, and statement of shareholders’ equity. These four financial statements will be evaluated from Nike Inc. and more in depth information will be included from information on the previous paper which will be link to the working capital strategies. Furthermore, a detail working capital recommendation to senior management will be included and the impact of Nike Inc. revenue increase of their working capital.
Thesis: Businesses deem financing necessary when they are just beginning, expanding, or recovering; Debt financing and equity financning have many advantages and disadvantages but also change the entire accounting method that is to be considered while running the business.
In this essay, I will give brief review notes for “Access to Capital Structure, and the Funding of the Firm” (Omer Brav 2009) which will be focused on the goal of this easy, how and why the theoretical hypotheses are tested and what are the findings. Some discussions about data, methodology used and theory defects will also be included in this essay for critical comment.
This ratio show a how many times the working capital has been employed in the process of carrying on the business. Higher the ratio, better the efficiency in the utilization of working capital.
Therefore, the company looses cash, which could aid further business operations. Increase numbers of creditors - countless businesses acquire credit to operate, however, too much credit can become a problem for a business, especially, if it also offers credit to customers. This is because you’re ability to pay your credit is dependent on whether your debtors pay you in due time. Therefore, in case they don’t, the business will surface cash flow problems. Over-financing – excessive borrowing to finance your business can result in higher interest rates and tougher repayment schedules and this can lead to cash flow challenges. Over-trading – when a business sells over and above its capability on credit, it results to loans or overdrafts to finance the transactions. If the customers do not pay on time, cash flow problem occurs. Over-investment – often times, a company may be tempted to utilise available cash for investment; purchase vehicles, machinery, premises, and other assets. Too much investment in assets and failure to budget for the future can cause a business to run out of cash and consequently, fail to finance
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.
Maintaining a company’s financial assets is a daunting task. Cash management techniques and short-term financing provide accounting executives with the tools needed to survive the constant changes within the economy. The combination of these tools and the knowledge of the world economy will assist companies in maintaining current assets and facilitates growth.
Managing an organization’s financial operation requires a good understanding of the economy and ways to maximize revenue. For an organization to operate on a daily basis, adequate cash flow is required. Poor cash management within an organization might make it hard for the organization to function because there may be shortage of cash in case of inconsistences in the market. In most companies, management is interested in the company 's cash inflows and outflows because these determines the availability of cash necessary to pay its financial obligations. Management also uses this information to determine problems with company’s liquidity, a project’s rate of return or value and the timeliness of cash flows into and out of projects (used as inputs
The inventory turnover is almost half compared to the industry average, although it managed to increase by 0.3 compared to 2002. The company needs to maintain a constant cost of goods sold and at the same time manage inventory more efficiently to maintain market competitiveness. The average collection period also increased slightly to 58 days, three days increase compared to 2002. The company needs to negotiate or persuade on efficient payment methods to customers to decrease the collection period down to industry average. The total asset turnover increased 0.1 to 1.6 but still failing to meet the industry standard of 2.0. Martin Manufacturing needs to boost sales while maintaining a constant asset value to meet or exceed industry standards.