What are the different elements of working capital

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Question - CASH OPERATING CYCLE - The working capital (or cash operating) cycle of a business is the length of time between the payment for purchased materials and the receipt of payment from selling the goods made with the materials.

The table below gives information extracted from annual accounts of Entity M for one year.

Year1

ITEM

AMOUNT UGX

Raw materials

108,000

Work in progress

75,600

Finished goods

86,400

Purchases

518,400

Cost of goods sold

756,000

Sales

864,000

Trade receivables

172,800

Trade payables

86,400

Required -

a) What do you understand by working capital?

b) What are the different elements of working capital?

c) Calculate the length of the working capital cycle (assuming 365 days in the year).

d) List the actions that Management of Entity M might take to reduce the length of the cycle.

Reference no: EM133095904

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