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What is the primary focus of supply chain management?
What is the primary focus of supply chain management?
Which element is considered central to the supply chain management process?
Which element is considered central to the supply chain management process?
What is the abbreviation for working capital requirements?
What is the abbreviation for working capital requirements?
What aspect must companies focus on to remain competitive in supply chain management?
What aspect must companies focus on to remain competitive in supply chain management?
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What does the term 'financial flows' refer to in supply chain management?
What does the term 'financial flows' refer to in supply chain management?
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What is a key benefit of effective supply chain management?
What is a key benefit of effective supply chain management?
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Which of the following elements does NOT form part of the supply chain management functions?
Which of the following elements does NOT form part of the supply chain management functions?
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Which planning and support tools are essential for controlling flows in supply chain management?
Which planning and support tools are essential for controlling flows in supply chain management?
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What is the average daily revenue calculated from $182,500$ divided by $365$?
What is the average daily revenue calculated from $182,500$ divided by $365$?
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Which percentage represents the working capital requirements (WCR) from accounts receivable?
Which percentage represents the working capital requirements (WCR) from accounts receivable?
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If the annual revenue is $182,500$ and there is a $30$ days inventory period with $40 ext{%}$ gross margin, what is the cost of sales percentage?
If the annual revenue is $182,500$ and there is a $30$ days inventory period with $40 ext{%}$ gross margin, what is the cost of sales percentage?
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What amount is represented by the inventory working capital requirement (WCR) given the provided parameters?
What amount is represented by the inventory working capital requirement (WCR) given the provided parameters?
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For accounts payable, what is the result when considering $20$ days of credit given by suppliers?
For accounts payable, what is the result when considering $20$ days of credit given by suppliers?
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What is the general formula to calculate the working capital requirements (WCR)?
What is the general formula to calculate the working capital requirements (WCR)?
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If the net capital requirements total $25,500$, what percentage does this represent of the global revenue?
If the net capital requirements total $25,500$, what percentage does this represent of the global revenue?
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What is the primary objective of management concerning working capital requirements?
What is the primary objective of management concerning working capital requirements?
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What is the formula for net working capital requirement?
What is the formula for net working capital requirement?
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What is the amount of money needed to start another business when no stock is held?
What is the amount of money needed to start another business when no stock is held?
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If a business holds inventory worth $500 for 30 days and sells $100 worth, how much cash is needed to fund the inventory after 30 days?
If a business holds inventory worth $500 for 30 days and sells $100 worth, how much cash is needed to fund the inventory after 30 days?
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What happens to a company's financial situation when inventory plus accounts receivable is higher than accounts payable?
What happens to a company's financial situation when inventory plus accounts receivable is higher than accounts payable?
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How much does the customer typically take to pay in the discussed example?
How much does the customer typically take to pay in the discussed example?
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What can rapid increases in working capital requirements lead to if not managed properly?
What can rapid increases in working capital requirements lead to if not managed properly?
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What is included in the working capital requirement according to the formula?
What is included in the working capital requirement according to the formula?
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What does inadequate financing during rapid growth of sales lead to?
What does inadequate financing during rapid growth of sales lead to?
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Study Notes
Working Capital Requirements (WCR)
- WCR is the amount of cash liquidity a company needs during an accounting exercise or production process.
- WCR is used to honor the company's obligations.
Components of WCR:
- Accounts Receivable: The amount of money owed by customers for goods or services already delivered.
- Inventory: The cost of goods held in stock awaiting sale.
- Accounts Payable: The amount of money a company owes to suppliers for goods or services received.
Calculating WCR:
-
Accounts Receivable Calculation:
- Divide the annual revenue by 365 days to get the average daily revenue.
- Multiply the average daily revenue by the number of days given to customers to pay.
-
Inventory Calculation:
- Multiply the days of inventory by the daily cost of sales.
- The daily cost of sales is calculated by dividing the daily revenue by the cost of sales percentage.
-
Accounts Payable Calculation:
- Multiply the number of days given by suppliers to pay by the daily cost of sales.
Net WCR
- Net WCR Formula: Accounts Receivable + Inventory - Accounts Payable
- Significance of Positive Net WCR: This indicates a higher need for cash liquidity and could be a sign of financial strain.
-
Reducing WCR:
- Negotiating better terms with suppliers and customers.
- Implementing efficient inventory management systems.
- Shortening the time it takes for customers to pay.
Supply Chain Management
- Definition: The coordination and integration of all activities within a company's supply chain, from suppliers to customers.
-
Core Activities:
- Manufacturing
- Purchasing
- Transportation
- Inventory Management
- Distribution
-
Benefits:
- Improved product quality
- Reduced inventory levels
- Decreased waste
- Lower transaction costs
- Improved on-time delivery rates
-
Considerations:
- Modern analysis
- Load planning
- Route planning
- Distribution network optimization
- WCR management
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Description
Explore the concept of Working Capital Requirements (WCR) and its importance for a company's liquidity. This quiz covers the components of WCR, including Accounts Receivable, Inventory, and Accounts Payable, as well as the calculation methods for each. Test your understanding of financial management principles.
