What is the concept of working capital

Reference no: EM132547777

WOKING CAPITAL - REVIEW QUESTIONS

Question 1. What is the concept of working capital?

Question 2. What are the advantages of maintaining an adequate working capital in a small business?

Question 3. You have collected the following information for Wazalendo Farm Inc.
Item Beginning Ending
Inventory Tshs 5,000 7,000
Accounts receivable 1,400 2,600
Accounts payable 2,700 4,800
Credit sales for the year just ended Tshs 50,000/=, and cost of goods sold was Tshs
30,000/=.
Required:
i. How long does it take Wazalendo Farm Inc., to collect on its receivables?
ii. How long does produce stay around before it is sold?
iii. How long does the firm take pay its creditors?
iv. List cash management techniques which can be used to shorten the cash
conversion cycle.
v. List the techniques for speeding up cash collections.

Question 4. Suppose a particular firm you know turns its inventory after every 105 days on average. Its accounts receivable are collected on the average, after 75 days; and payable are paid, on average 60 days after they arise. Assuming a 360 - day year, what changes will occur on the cash conversion cycle under each of the following circumstances?
a) The average age of inventory changes to 90 days;
b) The average collection period changes to 60 days;
c) The average payment period changes to 105 days

Question 5. What do you understand by the term "risk return trade-off"?

Reference no: EM132547777

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