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Purpose of Working Capital

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Define the purpose of working capital. How does extending credit affect working capital requirements and the cash conversion period? Evaluate consequences of inventory costs on working capital needs and the cash conversion period.

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Define the purpose of working capital. How does extending credit affect working capital requirements and the cash conversion period? Evaluate consequences of inventory costs on working capital needs and the cash conversion period.

Working capital:
There are two terms denoting the working capital:
1. Gross working capital and
2. Net working capital.
Gross working capital means the amount invested in the current assets of the company.Net working capital means the difference between the current assets and current liabilities. If the current assets are more than the current liabilities, then it is positive working capital. Otherwise, it is negative working capital. Working capital is the measure of company's solvency ,its ability to pay its suppliers without any delay.
The difference between the working capital of two reporting periods is called the change in working capital.
Current assets comprises of

1. Accounts ...

Solution Summary

The solution discusses the purpose of working capital.

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