Therefore, Amber has a net working capital of $200 and a current ratio of 1.20. This indicates that the company will be able to pay any short term obligations that arise unexpectedly due to some investment in the working capital. On the other hand, Barbie has no current assets, but has $600 worth of current liabilities. Therefore, Amber has a net working capital of negative $600 and a weak current ratio. This indicates that the company will not be able to pay any short term obligations that arise unexpectedly due to no investments in the working capital. Amber Barbie Current Assets $1,200 $0 Current Liabilities $1,000 $600 Net Working Capital $200 ($600) Current Ratio 1.20 0.00 Therefore, it is important for a corporation to invest some of its funds in the financing of the working capital. A company must be able to pay its creditor when payment becomes dues, and possess ample inventory and cash to ensure the smooth functioning of the company. Question 4 A firm achieves optimal level of working capital only when the constituents of the working capital achieve optimal position. The company must have a favorable level of inventory determined by the economic order quantity. It must work upon optimal lead times that ensure no shortfall and no excess inventory at any point in time. This will ensure minimum costs association with the inventory handling. Likewise, the company must forecast future cash inflows and outflows, risk tolerance and borrowing capability to ensure an optimal cash level. An excess surplus must be invested in short term securities, whereas a shortage must be immediately handled with an overdraft with the bank. Similarly, the company could determine its advantageous day’s sales outstanding which will allow it to make an effective policy toward the management of its receivables. (Brigham and Gapenski 1988) Question 6 The matching principle of the working capital financing states that the non-current assets and permanent current assets must be financed by long term debt; whereas fluctuating current assets must be financed by short term debt. (Brigham and Gapenski 1988) For instance: A retail store balance sheet shows inventory, cash, account receivable and fixed assets. At any point in time, this store has a minimum amount of all current assets which becomes a part of the permanent current assets. Therefore, according to this matching principle, these permanent current assets and fixed assets are to be financed by long term debt. There is low cost associated with this technique as most of the assets are finance low interest long term debt. Likewise, it results in a higher profitability as interest expense is low in this strategy. It also provides the company with more liquidity and a better current ratio. (Brigham and Gapenski 1988) Problem 17-3 Company A Company B Current Assets $1,400 $960 Current Liabilities $900 $600 Net Working Capital $500 $360 Current Ratio 1.56 1.60 Company A appears to be more liquid as compared to company B. This is because it has a higher net working capital. Even though company A has slightly lower current ratio, it holds more of its assets in the liquid form. Problem 17-6 a. Working Capital = $160 b. Net Working Capital = Current Assets – Current Liabilities Net Working Capital = $160 - $170 Net Working Capital = ($10) c. The company is following a very aggressive approach to working capital financing. This is indicated by a low net working capital; which shows that all of the current assets –
Running Head: ABBREVIATED TITLE OF YOUR CHOICE (all caps) Finance Problem Solving Question 2 Working capital refers to the current assets – both temporary and permanent – of a company…
What is the way forward? Since the above issues have been found to be facts, it is necessary to focus on the necessary steps to take in order to stop them from occurring. Some policies need to be formulated in order to offer solutions to the problems. A thorough research needs to be carried out to establish the cause of the problems.
sessment: Assignment 2 Due 22 May 2011 Further Information / Extensions (If an extension was granted you must state the revised submission date here and attach evidence of the approval of the extension. Unless you provide evidence of an extension, the due date for your assignment will be deemed to be the date indicated in the course information booklet.) I declare that the work contained in this assignment is my own, except where acknowledgement of sources is made.
The paper begins with a brief introduction of TSI and the project. It then goes through the TSI process of identifying the problems, developing a solution and implementing change. In identifying the problem, the metaphor method
Unless you provide evidence of an extension, the due date for your assignment will be deemed to be the date indicated in the course information booklet.)
I authorise the University to test any work submitted by me, using
He also demands arrears in full. Pete’s business is not still performing well and he therefore rejects Nath’s demands.
Pete and Nath are two parties who enter into an agreement. According to Koffman and Macdonald (2007), a contract is a
If the sphere is kept at a fixed potential _, we must add an image charge at the origin so that the potential at R is _. If the sphere has a total charge Q on its inner and outermost surfaces, we figure out what image charge would create a surface charge equal