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Discussion on Working Capital and the Financial Environment of Different Companies

1. Describe and quantify the elements of working capital for the 2006 fiscal year for both the Walt Disney Company and Apple.
2. Explain the functions of intermediaries and financial regulatory bodies within the companies.
3. Determine the importance of control programs and effective internal control techniques to these organizations, and discuss the impact of the 2002 Sarbanes-Oxley Act.

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Working capital is the capital which is used to run daily operations in a smooth manner. It has got two parts:

1) Gross Working capital is the firm's total current assets used in operations. Gross Working capital = total current assets

These current assets include cash, marketable securities, prepaid expenses, accounts receivable, inventory, and other current assets. Working capital represents the liquid portion of the firm.

2) Net Working Capital means the difference between current assets and current liabilities, and therefore, represents that position of current assets, which the firm has to finance either from long-term funds or bank borrowings.

Use of working capital:

Working capital provides the resources for the day to day operations of the firm. Without cash, the firm cannot pay its bills. Without receivables, the company would have difficulty selling merchandise. Without inventory, the firm would be unable to make immediate delivery of goods.

Let's Consider the Case of Apple:

Apple's Working Capital Analysis In $000'

Current Assets:
Cash And Cash Equivalents: 6,392,000
Short Term Investments: 3,718,000
Net Receivables: 3,452,000
Inventory: 270,000
Other Current Assets: 677,000
Gross Working Capital =Total Current Assets 14,509,000

Current Liabilities:
Accounts Payable: 6,471,000
Short/Current Long Term Debt -
Other Current Liabilities -
Total Current Liabilities: 6,471,000

Net Working Capital= Gross Working Capital-Current Liabilities: 8,038,000.00
Comments: It has got high gross working capital and net working capital which shows adequate liquidity.

Now Let's Consider the Case of Walt Disney:

Walt Disney's Working Capital Analysis In 000'

Current Assets
Cash And Cash Equivalents: 2,411,000
Short Term Investments -
Net Receivables: 5,299,000
Inventory: 1,109,000
Other Current Assets: 743,000
Gross Working Capital =Total Current Assets: 9,562,000

Current Liabilities
Accounts Payable: 5,917,000
Short/Current Long Term Debt: 2,682,000
Other Current Liabilities: 1,611,000
Total Current Liabilities: 10,210,000

Net Working Capital= Gross Working Capital-Current Liabilities: -648,000
Comments: It has moderate gross working capital and negative net working capital which shows inadequate liquidity or an aggressive working capital management strategy.

Describe the importance of internal control programs:

Control mechanisms assist in increasing communication, empowering the workforce, and attaining the goals set forth by helping management in the company evaluate and compare the performance of the company and/or employee over a specified time period to standards that have been preset, benchmarks and desired targets.

The management control system is the process of influencing human behavior in order to implement the strategy of the organization. A company should have several internal control programs implemented such as, accounting control systems and administrative controls. An accounting control system consists of financial records and procedures dealing with cash disbursements, cash receipts, purchase of goods and services, employee payroll, and sales or other rendering of goods and services. ...

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The solution provides a discussion on working capital and the financial environment of different companies.

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