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

Advantages and disadvantages of process, Advantages and disadvantages 1...

Advantages and disadvantages 1. Advantages There are some benefits that Aldi can get from short term objectives such as allow development or small format supermarkets in edg

What are the characteristics of an effective control system, QUESTION S...

QUESTION Strategic decisions are the essence of strategic management. According to Pears & Robinson, typically, strategic issues have certain dimensions. Write short notes on e

Branch manager, Discuss how changes in income ,technology ,or other changes...

Discuss how changes in income ,technology ,or other changes in the economic environment may lead to changes in the balance between public and private provision .Illustrate,for ins

Strategic management system, 1. Find one research article entitled 'Using t...

1. Find one research article entitled 'Using the balance scorecard as a strategic management system' attached here with. Read this article carefully and give your comments. You may

Leadership, Critically evaluate and analyse leadership you have witnessed i...

Critically evaluate and analyse leadership you have witnessed in specific situations. This means comparing concrete examples (what was said and what was done) to relevant theories

Controlling subsidiaries, Controlling subsidiaries Mission stateme...

Controlling subsidiaries Mission statement, goals and objectives. Performance measurement systems e.g. financial ratios and multidimensional frameworks. Systems

Problem-solving using knowledge of materials and manufacture, Based on your...

Based on your findings in Task 1, investigate the problem described in Appendix 1 and propose a solution, in terms of material choice and manufacturing process. Prepare a report

Value marginal tradeoffs, Problem: Both person A and person B are purchasin...

Problem: Both person A and person B are purchasing bananas and apples from the same supermarket, where the price of a banana is $2 and the price of an apple is $1. Person A is curr

Show the 4c''s in performance measurement, Q. Neely's 4Cs in performance me...

Q. Neely's 4Cs in performance measurement 1.  Check position e.g. where are we now? 2.  Communicate position e.g. to internal and external stakeholders. 3.  Confirm pri

Long-term strategic management, After reading through the articles provided...

After reading through the articles provided in your Assigned Reading and Research, Review one of the articles using the following format with the headings indicated in bold below:

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