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Working Capital DQ

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How do business managers determine that acquiring a given working capital asset would help their company financially?

What type of working capital asset is time-consuming to manage and why? Explain, if a current ratio <1, does it help management identify a financial problem?

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Solution Summary

This solution looks at how business managers go about determining whether or not a given working capital asset would help their company financially and explains the type of working capital asset that is especially difficult to deal with for business managers. Additionally, the solution explains why a ratio of <1 will help business managers to identify a financial problem.

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The equation for working capital is current assets (cash, accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be readily converted to cash) minus current liabilities (accounts payable, salaries/wages payable, taxes payable, short-term interest payable): the equation looks like current assets - currrent liabilities = working capital.

One way business managers can determine if a ...

Solution provided by:
Keonda Grant-Taylor, MBA
Education
  • Doctorate of Management in Organizational Leadership, University of Phoenix - Online
  • MBA, Webster Univeristy
  • Dual BS Degrees, University of South Carolina
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