Understanding Working Capital and Cash Management
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How would you define and calculate working capital
How they can improve their working capital?
What are the great approaches for cash management? If you are the controller who is in charge of managing cash, what methods would you take and why?
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Solution Summary
While working capital is not an effective long-term measure of a company's financial status; it does show how well a company is balancing its current assets and current liabilities. Further, working capital can be used as a measure to be compared against past working capital in order for a company to assess any significant increases or decreases in revenue and liabilities. This piece defines working capital and notes ways in which a company can improve it alongside of including great approaches to cash management.
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What is working capital and how would you calculated it?
Working capital= Current Assets-Current Liabilities.
Working capital is measured for a particular point in time and cannot be used for long-term forecasting. Further, if you know how to calculate working capital you are then able to calculate other financial analyses such as the Current Ratio which is Current Assets/Current Liabilities.
How they can improve their working capital?
What works for one company may not work for another. In other words, working capital cannot be analyzed in terms of ...
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