Working capital decisions, Managerial Accounting

Assignment Help:

The decisions about long-term investment are depends on judgments on future cash flows, the improbability of such cash flows and the opportunity cost also of the funds to be invested. In so far as working capital management decisions are related the underlying criteria are similar but, there is a raised focus on liquidity and management of operating cycle. Operating cycle terms to the time this takes to exchange current assets as excluding cash in cash. The operating cycle in part finds out how long it gets for a firm to produce cash from current assets and thus the risk and cost of its investment in working capital or current assets. Working capital is the capital which can be instantly put to work to make the benefits of capital investment. Working capital is also termed as circulating or current capital.

The main difference among long and short-term financial management i.e. also considered as working capital management is about quantum and frequency of cash flows. The amount of funds dedicated are generally large and one off decision in case of long-term financial management whereas, in case of short term financing the amount of funds offer are relatively tiny and frequently repetitive in nature. The impact of long term financing ranges over an extended period of time generally 15 to 20 years or more, while, the impact of short term financing is inside the operating cycle generally ranging from three months to a year.

Two concepts of working capital are as:

(i) Gross working capital

(ii) Net working capital

The gross working capital is the sum of all current assets. Net working capital is the diversity between current liabilities and assets. The constituents of working capital are demonstrated in Table no.1. Part A of this table demonstrates current assets and part B of this table demonstrates current liabilities.

                  Table no.: Constituents of current assets and current liabilities

Part A

Part B

Current Assets

Cash and Bank Balances

Inventories

Raw material and components, work in progress/process (WIP) finished goods, trade debtors, loans and advances, investments, pre-paid expenses

Current Liabilities Sundry Creditors Trade Advances

Borrowings (short term) Outstanding expenses

Taxes and dividends payable,

Other liabilities maturing within a year

This section deals along with specific aspects and considerations concerned to overall working capital management and is separated in the subsequent sections:

  • Factors influencing working capital needs
  • Characteristics of current assets
  • Levels of current assets
  • Profit criterion for current assets
  • Current assets financing policy
  • Resource of working capital finance
  • Approaches to bank financing
  • Impact of inflation on working capital
  • Operating cycle analysis
  • Processes for estimating working capital needs

Related Discussions:- Working capital decisions

Strategy, Strategy A business characteristically invests considerable t...

Strategy A business characteristically invests considerable time and money in developing or creating its strategy. Employees, harried with day-to-day tasks, sometimes fail to s

Strategies in working capital management, No further banks were the sole so...

No further banks were the sole source of funds for working capital requires of the business sector. At current more finance options are obtainable to a Finance Manager to allow smo

Describe breadth indicators and market sentiment indicators, Describe bread...

Describe breadth indicators and market sentiment indicators? 1. Distinguish among technical and fundamental analysis. As well explain essential concepts underlying chart analys

Calculate the total revenue obtainable when the market clear, Question: ...

Question: (a) (I) The following equations relate to the market conditions for pullovers at a given point of time: Demand Function: Q d = 1200 - P Supply Function: Q s

Batch size of one-jit features, Batch size of one Set up time is the am...

Batch size of one Set up time is the amount of time needed to adjust tools and to retool for various product. Long set ups a change over time make the production of batches wit

Credit evaluation, One of the significant elements of credit management is ...

One of the significant elements of credit management is the assessment of the credit risk of the customer.  As assessing risk two kind of errors arise that are as follows. Type

Explain the terms - maintenance and improvement, Explain the terms - mainte...

Explain the terms - maintenance and improvement Maintenance ; under the maintenance function, the management must first establish policies rules directives and standard operat

Explain product cost, Explain product cost Product costs are those cost...

Explain product cost Product costs are those costs which are associated with and directly identifiable with the product. In other words, which are assigned to the product are p

What is sunk cost, What is Sunk cost A cost has been incurred in the p...

What is Sunk cost A cost has been incurred in the past or sunk in the past and is not relevant to the particular decision making, is a sunk cost. If it is decided to replac

Explain the categories of the activity cost drivers, Explain the categories...

Explain the categories of The activity cost drivers The activity cost drivers can broadly be classified into following three categories: 1) Transaction drivers: for exampl

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