Managing Working Capital (Leaving Cert Business): Flashcards
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Liquidity definition
Liquidity definition
A company's ability to pay short-term debts as they fall due
Working Capital formula
Working Capital formula
Current assets minus current liabilities
Positive Working Capital occurs when
Positive Working Capital occurs when
Current assets are greater than current liabilities
What positive WC indicates
What positive WC indicates
Enough short-term assets to cover short-term obligations
Negative Working Capital occurs when
Negative Working Capital occurs when
Current liabilities exceed current assets
What negative WC suggests
What negative WC suggests
Business may struggle meeting short-term liabilities
Positive WC strategy: inventory management
Positive WC strategy: inventory management
Optimise inventory to prevent overstocking and free up cash
Positive WC strategy: excess cash use
Positive WC strategy: excess cash use
Use for short-term investments providing liquidity & returns
Negative WC strategy: inventory approach
Negative WC strategy: inventory approach
Reduce inventory to release cash; adopt just-in-time practices
Negative WC strategy: financing options
Negative WC strategy: financing options
Explore overdrafts or working capital loans to bridge gaps