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

Market segmentaion, how to write an assignment on market segmentaion

how to write an assignment on market segmentaion

Calculate average waiting time, Nation -Wide Bus Lines (NWBS) conducts trai...

Nation -Wide Bus Lines (NWBS) conducts training classes for new drivers. The classroom can hold 35 students. As long as the class size is less than or equal to 35, the training pro

Topic on training, need to make a memo to company executives explaining why...

need to make a memo to company executives explaining why adequate training is important to the company and how the financial costs can be justified

Principles of hyper competitive strategies., how might the principles of hy...

how might the principles of hyper competitive strategy b apllied to a fashion retailing industry

Why a strategic plan, Most executives are related with business planning. A...

Most executives are related with business planning. A business plan is typically written every year and includes things like a marketing plan, cash flow projections, a mission stat

Explain about position ratio - working capital ratio, Q. Explain about Posi...

Q. Explain about Position ratio - working capital ratio? 1 Current ratio (CA) or working capital ratio CA = Current assets / Current liabilities       (times) The current

Genentech after the acquisition by Roche, apply a five forces analysis how ...

apply a five forces analysis how would you describe Genentech competitive position

Balanced scorecard, Present five arguments to justify why Chemical’s retail...

Present five arguments to justify why Chemical’s retail bank, a financial institution with the bulk of its inputs and outputs denominated in financial terms, needs measures other t

International aspects to transfer pricing, Q. International aspects to tran...

Q. International aspects to transfer pricing? The following issues can influence international transfer pricing decisions. Exchange rates e.g. fluctuations in global cur

Steady state system, Consider a community dining style restaurant such as B...

Consider a community dining style restaurant such as Benihana of Tokyo. Assumptions are as follows: When you admit a customer to the bar, the customer is assured a seat in th

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