740360
Description
Mind Map by rosette.sok21, updated more than 1 year ago
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Created by rosette.sok21
over 10 years ago
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Working Capital
- lifeblood of a business
- working capital = current assets - current liabilities
- working capital = current assets - current liabilities
- How much is needed?
- Sufficient needed to prevent a business from becoming illiquid + unable to pay its debt
- too high a level of WC = disadvantage
- too much capital tied up in stocks, debtors + idle cash = the return that money could earn elsewhere
- too much capital tied up in stocks, debtors + idle cash = the return that money could earn elsewhere
- working capital cycle
- the period of time between spending cash on the production process & receiving cash payments from customers
- the longer this time period (from buying materials + receiving payment) = the greater the working capital needs
- the longer this time period (from buying materials + receiving payment) = the greater the working capital needs
- the period of time between spending cash on the production process & receiving cash payments from customers
- too high a level of WC = disadvantage
- Sufficient needed to prevent a business from becoming illiquid + unable to pay its debt
- Cash vs. Profit
- Profit does not pay the bills - cash does
- common for profitable businesses to run short of cash
- common for profitable businesses to run short of cash
- Cash flow
- relates to the timing of payments to workers and suppliers + receipts from customers
- the sum of cash payments made to a business (inflows) - the sum of cash payments made by it (outflows)
- the sum of cash payments made to a business (inflows) - the sum of cash payments made by it (outflows)
- relates to the timing of payments to workers and suppliers + receipts from customers
- Profit does not pay the bills - cash does
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