Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
When considering how working capital is funding it is useful to divide assets into permanent current assets, noncurrent assets and fluctuating current assets. Permanent current assets symbolize the core level of working capital investment needed to support a given level of sales. As sales raise this core level of working capital also increases. Variable current assets represent the changes in working capital that arise in the normal course of business operations for example when some accounts receivable are settled later than expected or when inventory moves more slowly than planned.
The matching principle proposes that long-term finance should be used for long-term assets. In a matching working capital funding policy consequently long-term finance is used for both permanent current assets and non-current assets. Short-term finance is utilized to cover the short-term changes in current assets represented by fluctuating current assets.
Long-term debt has a higher cost in comparison of short-term debt in normal circumstances for instance because lenders require higher compensation for lending for longer periods or because the risk of default increases with longer lending periods. Though long-term debt is more secure from a company point of view than short-term debt since provided interest payments are made when due and the requirements of restrictive covenants are met terms are fixed to maturity. Short-term debt is riskier in comparison long-term debt because for example an overdraft is repayable on demand and short-term debt may be renewed on less favourable terms.
A conservative working capital financial support policy will use a higher proportion of long-term finance than a matching policy thus financing some of the fluctuating current assets from a long-term source. This will be less risky as well as less profitable than a matching policy and will give rise to occasional short-term cash surpluses.
An forceful working capital funding policy will use a lower proportion of long-term finance than a matching policy financing some of the permanent current assets from a short-term source such as an overdraft. This will be more risky as well as more profitable than a matching policy.
Other factors that manipulate a working capital funding policy include management attitudes to risk and previous funding decisions and organisation size. Management attitudes to risk will conclude whether there is a preference for a conservative an aggressive or a matching approach. Previous financial support decisions will determine the current position being considered in policy formulation. The dimension of the organisation will influence its ability to access different sources of finance. A small company for instance may be forced to adopt an aggressive working capital funding policy for the reason that it is unable to raise additional long-term finance whether equity of debt.
Partition of Investment Risk The expected returns and the fluctuation in returns are two factors in evaluating investments. Expected Returns While the actual returns
Explain the significance of the term additional funds needed. While the pro forma balance sheet is completed, total assets and total liabilities and equity will hardly match.
Briefly Explain Non Financial Objectives Monetary statements of any sort are only an expression of organisational activities that can be measured. Lots of the activities of an
Step 1) Opportunity Set Graph:Combine 2 of your stocks (Ignore the other 2 stocksfor this step only). Construct an investment opportunity set (the curved set) between the two risk
how would you judge the potential profit of Bajaj Electronics on the first year of sales to booth plastice and give your views to to increase the profit
What are the Measures of growth Sales or market share Number of products or markets Employees Profit Number of retail stores
How do tax considerations affect the cost of debt and the cost of equity? For the reason that interest on debt is tax deductible to the issuing firm, the higher the tax rate th
Q. Explain Risk Adjusted Discount Rate Method? In the risk adjusted discount rate method the future cash flow from capital projects are discount at the hazard adjusted discount
Explain the term- Interest cover Interest cover =Profit before interest and tax (PBIT)/ Interest payable(no. of times) Interest cover represents the safety of earnings tha
Common Size Financial Statement Common Size Financial Statement is a company financial statement that shows all items as percentages of a common base figure. This kind of finan
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!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd