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Financial Analysis for Managers DQ4
Pages 2 (502 words)
Working capital plays a vital role in accomplishing the necessary obligations of a firm. It is also important in providing a safer side for the creditors of a company. The essential purpose of the working capital is to control and look after the firm's cash inflows and outflows.
In organizations, for the investors' interest, abundance in the company's working capital depicts a positive sign in making financial amendments and integrations internally and also in the market to compete other companies.
After globalization, a number of companies are comparing their positions in the market by considering their past and current records and predicting their futures associated with liquidity and solvency of firm's assets (Bernstein et al, 1997).
Today the policy makers, especially the governments, deeply observe the trends in variations of the working capital of organizations to impose rules and regulations on them. Even the investment decisions from giant companies are also based on the extent of working capital that a company possesses.
Inventories act as the important assets for various businesses and they also influence the revenue generation of different companies. Inventory costs are essential to determine because it affects the income and asset levels.
The net income of an organization is dependent on the inventory costs, except for the service organizations, as the net income is directly linked with the costs of goods sold. Inventory costs can be categorized in two ways. ...
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