extending credit affects working capital requirements
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Discuss how extending credit affects working capital requirements and the cash conversion period (cycle)?
Evaluate the consequences of inventory costs on Working Capital needs and the Cash Conversion Period.
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The solution discusses how extending credit affects working capital requirements and the cash conversion period.
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Working capital is the firm's total current assets used in operations.
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.
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.
Net Working Capital means the difference between current assets and current ...
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