Podcast
Questions and Answers
How is the volume of sales related to working capital?
How is the volume of sales related to working capital?
- Sales volume does not impact working capital.
- The volume of sales and working capital are directly related. (correct)
- Higher sales require a fixed amount of working capital.
- An increase in sales reduces the need for working capital.
What impact does a longer production cycle have on working capital?
What impact does a longer production cycle have on working capital?
- It reduces the cash flow of the business.
- It requires less working capital.
- It has no effect on working capital.
- It requires more working capital. (correct)
During which economic condition is the need for working capital typically higher?
During which economic condition is the need for working capital typically higher?
- During recessions.
- During periods of stable sales.
- During seasonal fluctuations.
- During economic booms. (correct)
What effect do favorable purchase terms typically have on a company's working capital needs?
What effect do favorable purchase terms typically have on a company's working capital needs?
How does effective credit control affect a company's working capital?
How does effective credit control affect a company's working capital?
In the context of growth and expansion, what does a company typically require?
In the context of growth and expansion, what does a company typically require?
What is the role of management ability in working capital needs?
What is the role of management ability in working capital needs?
How can access to funds from financial institutions impact working capital?
How can access to funds from financial institutions impact working capital?
Flashcards
Working Capital and Sales
Working Capital and Sales
Higher sales usually mean more working capital is needed. Lower sales mean less is needed.
Production Cycle and Capital
Production Cycle and Capital
Longer production times require more working capital (raw materials, inventory, and cash flow lag).
Economic Cycles & Working Capital
Economic Cycles & Working Capital
During booms, sales are higher and more working capital is usually needed. During recessions, less is needed.
Credit Terms and Capital
Credit Terms and Capital
Signup and view all the flashcards
Credit Control and Liquidity
Credit Control and Liquidity
Signup and view all the flashcards
Growth and Working Capital
Growth and Working Capital
Signup and view all the flashcards
Efficient Management and Capital
Efficient Management and Capital
Signup and view all the flashcards
External Finance and Capital
External Finance and Capital
Signup and view all the flashcards
Study Notes
Working Capital
- Volume of sales is a key factor impacting working capital needs. Higher sales volume requires more capital.
- Production cycles affect working capital. Longer cycles require more capital.
- Business cycles also influence working capital. Booms increase, recessions decrease working capital needed.
- Credit terms (purchases/sales) influence capital requirements. Liberal credit policies for sales and tight credit policies for purchases reduce capital needs.
- Sound credit control policies enhance cash flow and reduce capital requirements. Liberal policies increase bad debt risk affecting capital requirements.
- Growth and expansion demand more working capital for increased operations.
- Management ability (coordination between production and distribution) reduces working capital requirements. Poor inventory management increases working capital needs.
- External financial factors (e.g., access to bank loans) reduce a business's internal working capital requirements.
Capital Structure
- Companies fund themselves through various sources: equity shares, preferred stock, reserves, surpluses, debt (debentures, loans).
- The combination of these funding sources is called the capital structure. This also includes the security mix for the business.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
