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

Explain the components of strategic management, Question 1 What are the adv...

Question 1 What are the advantages of strategic management? Question 2 Explain the components of strategic management Question 3 List the reasons for cross-border mergers and

Illustrate about asset turnover - performance ratios, Q. Illustrate about A...

Q. Illustrate about Asset turnover - performance ratios? Asset turnover                                    =    Turnover /    Total assets or Capital employed This shows how

Explain activity based management, Q. Explain Activity based management? ...

Q. Explain Activity based management? Activity based management (ABM) is about satisfying customers whilst making fewer demands on internal resources.  The aim is that once cos

What are multinational corporations and enterprises, Question 1: (a) ...

Question 1: (a) What is "Globalisation"? Discuss its implications, positive or negative, with regards to our home island, Mauritius. (b) What are Multinational Corporat

Explain about opportunity cost pricing, Q. Explain about Opportunity cost p...

Q. Explain about Opportunity cost pricing? Opportunity cost pricing is considered most mathematically correct way of viewing transfer pricing. Reason is that it looks at transf

Industry Profitability, How do the five competitive forces in Porter''s mod...

How do the five competitive forces in Porter''s model affect the profitability of the overall industry? For example, in what way might weak forces increase industry profits, and in

Environmental scan, Environmental scan: Arpanaa is located along the giriv...

Environmental scan: Arpanaa is located along the girivalam path of the holy city which is a favourable destination for many people who wish to stay .There are around three competi

What do you understand by the term cultural web, Question 1: (a) What d...

Question 1: (a) What do you understand by the term "cultural web" as referred to organisations? (b) Apply the cultural web concept to Toyota. Discuss whether the cultural we

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