wcc

Question 2

gross working capital

Answer 2

the firms investment in current assets to o generate income and profits

Question 3

net working capitals

Answer 3

current assets-current liabilities
liquidity

Question 4

wcm

Answer 4

The administration and management of the firm’s current assets and the financing (short term and long term)
needed to support current assets

Question 5

importance of working capital

Answer 5

In a typical manufacturing firm, current assets exceed one-half of total assets.
Excessive levels of investment can result in a substandard Return on Investment ROI
Current liabilities are the principal source of external financing for small firms.
Working capital requires continuous, day-to-day managerial supervision.
Working capital management affects the company’s Risk, Return, Profits and Share price.

Question 6

working capital cycle

Answer 6

cash converion cycle
focuses on the time period between Cash payments made to suppliers for Inventory, Raw materials & Cash
received from debtors for CREDIT sales.

= inventory days on hand + debtors collection period-creditors payment period

Question 7

days inventory on hand

Answer 7

Inventory x 365 over cos expense
ncreased Days inventory on hand relative to previous years, indicates inefficient inventory
management and increases risk of inventory obsolescence (out of fashion & old), increased carrying
costs, loss of profits.
 But holding too little inventory increases the risk of stock-outs resulting in increased ordering costs, loss of
sales, and loss of profits. Holding less inventory decreases carrying costs (warehousing, storage and
insurance) and obsolescence.

Question 8

ACCOUNTS RECEIVABLE DAYS (Debtors collection period)

Answer 8

ave num of days between credit sales and when cash is collected from debtors

Net Trade receivables (Debtors) x 365 over credit sales 35,078.4* 2,456.9*
= 7.81 days = 54.12 days

increaseing: credit sales may increase, cash inflows reduced, bad debt increased

decreasing
cash inflows improve, bad debts decrease, credit sales decrease

Question 9

ACCOUNTS PAYABLE DAYS

Answer 9

ave num of days betweern credit purchases and cash paid to creditors

creditors x 365 over cost of sales expense
good source of interest free finance
improve- increase payment period as long as its within credit terms

Question 10

operating cycle

Answer 10

inventory days on hand + debtors

Question 11

ccc

Answer 11

operatibg cycle - creditors payment period