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

Open communication , 1. Encourage open communication among team members to ...

1. Encourage open communication among team members to support team development 2. Demonstrate ways of resolving conflict among team members

Marketing strategy for services, Marketing Strategy for Services ...

Marketing Strategy for Services This activity is part of your marketing plan.  Prepare a 4-5 page report, addressing the following : o   Describe the target

Student.., ambassador is aknown brand in ethiopa. the company produces diff...

ambassador is aknown brand in ethiopa. the company produces different kinds of product that assisting the company to generate maximum profit more that of competitors. today the com

Formal strategic planning for business, LD is the owner and manager of her ...

LD is the owner and manager of her own florist business, LD Flowers. Although starting out initially as a hobby, it has developed into a sustainable business. LD's original busines

What are the essential qualities of negotiators, Question 1: (i) Critic...

Question 1: (i) Critically evaluate this statement: "Disputes can be resolved through use of interest-based negotiations only" (ii) Discuss the prerequisites necessary fo

The strategic management process, what is the greatest takeaway from this c...

what is the greatest takeaway from this case in terms of strategic management

How might a company sustain and win a price war, ? A) By including a lower ...

? A) By including a lower cost structure ? B) By cross-subsidizing one business from another ? C) By including "deeper pockets" to fund short to medium term losses

Define strategic management, QUESTION 1 Strategic Management is current...

QUESTION 1 Strategic Management is currently the core of business policy discipline everywhere (a) Define Strategic Management (b) Write short notes on the four important

UPD manufacturing, Would you recommend changing to the optimal order interv...

Would you recommend changing to the optimal order interval?

Tangy spices ltd, what strategic alternatives followed by Tangy spices ltd?...

what strategic alternatives followed by Tangy spices ltd?

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