Explain about position ratio - working capital ratio, Strategic Management

Assignment Help:

Q. Explain about Position ratio - working capital ratio?

1 Current ratio (CA) or working capital ratio

CA = Current assets / Current liabilities       (times)

The current ratio measures the short term solvency or liquidity; it shows the extent to which the claims of short-term creditors are covered by assets.  Current ratio is essentially looking at the working capital of the company.  Effective management of working capital makes sure the organisation is running efficiently.  This will ultimately result in increased profitability and positive cash flows.  Effective management of working capital includes low investment in non-productive assets like trade receivables, inventory and current account bank balances.  Additionally maximum use of free credit facilities like trade payables ensures efficient management of working capital. 

Normal current ratio is around 2:1 though this varies within different industries.  Low current ratio can indicate insolvency.  High ratio can indicate not maximising return on working capital.  Valuation of inventories would have an impact on the current ratio, as will year end balances and seasonal fluctuations.


Related Discussions:- Explain about position ratio - working capital ratio

Portfolio analysis, In portfolio analysis, the business views its product l...

In portfolio analysis, the business views its product lines and business units as separate investments, each responsible for producing a positive return. These separate investments

Case study, Akash Engineering Ltd. (AEL) had achieved sales of Rs. 3440 lak...

Akash Engineering Ltd. (AEL) had achieved sales of Rs. 3440 lakhs during the year 2004-05 against sales of Rs. 1209 lakhs previous year. The sales this year were highest ever achie

Explain about dividend yield, Q. Explain about Dividend yield ? Dividen...

Q. Explain about Dividend yield ? Dividend yield     = (Dividend per share/Market share price) x 100% The dividend yield is the cash return on the share (not the whole retur

Formulate a corporate level strategy, For your first assignment you describ...

For your first assignment you described the recent macro and micro scale developments of the sector you are or would like to be in.  Now select a prominent company (it can be eithe

Importance of external factors affecting the organization, Choose a real li...

Choose a real life company.  This could be an organization from any industry.  No two students should select the similar company.  It could be the organization you are working in o

Define strategic planning, QUESTION Firms often compete with each other...

QUESTION Firms often compete with each other to gain their customers' attention and business. While doing so, each firm tries to chalk out its unique strategy or gameplan. Stra

Stakeholders, Ask What advantages are there to employees as stakeholders ar...

Ask What advantages are there to employees as stakeholders are available in Germany that are not provided to employees in US companies? In the United States, how do employees let

Differences of eva and ri, Differences of EVA and RI EVA uses the r...

Differences of EVA and RI EVA uses the replacement not historical accounting cost of assets. Profit calculated under both methods are different e.g. with EVA the repla

Blue ocean starategy, Ask quest''Blue Ocean Strategy’ a. What is it? b. Wh...

Ask quest''Blue Ocean Strategy’ a. What is it? b. What are its characteristics? c. If you were to develop a Blue Ocean Strategy for a firm of your choice (any industry, any size,

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd