Define the purpose of working capital. How does extending credit affect working capital requirements and the cash conversion period (cycle)? Evaluate the consequences of inventory costs on Working Capital needs and the Cash Conversion Period.© BrainMass Inc. brainmass.com March 4, 2021, 6:57 pm ad1c9bdddf
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 ...
This solution explains the concepts and formulas for working capital needs and the cash conversion period in 333 words.