Working Ca

Notes

•Working Capital – Answers 1. What are the three main components of working capital? 1. Current assets 2. Current liabilities 3. Net working capital ⸻ 2. For each component, does an increase raise or lower working capital? • Current assets ↑ → Working capital increases • Current liabilities ↑ → Working capital decreases • Net working capital is calculated as: Net working capital = Current assets – Current liabilities ⸻ 3. Can you calculate total working capital? Working capital = Current assets – Current liabilities Example: If Current assets = $200,000 and Current liabilities = $120,000, then Working capital = $80,000 ⸻ 4. Why is the ratio between current and non-current assets important? It indicates how liquid a business is. A higher proportion of current assets means the business can meet short-term obligations and operate smoothly daily. ⸻ 5. The same applies to liabilities. It shows the balance between short-term and long-term debt and how easily the business can cover upcoming obligations using liquid assets. ⸻ 7. Inventory a. Why have it? Because without products to sell, the business cannot...