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Bandibad, Jhoanna Marie L. November 25, 2021
ASSIGNMENT MODULE 11
1. What is working capital?
Working Capital is basically an indicator of the short-term financial
position of an organization, and is also a measure of its overall efficiency. It
also indicates liquidity levels of companies for managing day-to-day expenses
and covers inventory, cash, accounts payable, accounts receivable and short-
term debt that is due.
2. What is net working capital?
Net Working Capital is the difference between a company’s current
assets—such as cash, accounts receivable/customers’ unpaid bills, and
inventories of raw materials and finished goodsand its current liabilities,
such as accounts payable and debts.
It is also a measure of a company’s liquidity, operational efficiency, and
short-term financial health. If a company has substantial positive Net Working
Capital, then it should have the potential to invest and grow. If a company’s
current assets do not exceed its current liabilities, then it may have trouble
growing or paying back creditors. It might even go bankrupt.
3. What are the effects of changes in the net working capital?
The Change in Net Working Capital (NWC) section of the cash flow
statement tracks the net change in operating assets and operating liabilities
across a specified period.
If the change in Net Working Capital is positive, the company collects
and holds onto cash earlier. However, if the change in Net Working Capital is
negative, the business model of the company might require spending cash
before it can sell and deliver its products or services.
4. How do you improve a firm's net working capital?
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7 Steps on improving Net Working Capital:
a. Net working capital should be a positive number.
b. Get your invoices paid faster.
Billing immediately after the service/ product is completed or
delivered. Don’t wait until the end of the month.
Providing an incentive for early payments.
Establishing a penalty for late payments.
Making it easier on clients to make payments by providing an
online payment portal.
Automating the billing process and sending out regular reminders.
c. Check your inventory.
d. Review your vendor options and look for savings.
e. Evaluate your fixed expenses.
f. Automate and outsource.
g. Work with Specialists.
5. How do firms manage its net working capital?
Working capital management is a business strategy designed to
ensure that a company operates efficiently by monitoring and using its
current assets and liabilities to the best effect.
- The primary purpose of working capital management is to enable
the company to maintain sufficient cash flow to meet its short-
term operating costs and short-term debt obligations.
- The firm monitors the company's assets and liabilities to maintain
sufficient cash flow to meet its short-term operating costs and
short-term debt obligations.
- helps maintain the smooth operation of the net operating cycle,
also known as the cash conversion cycle (CCC)the minimum
amount of time required to convert net current assets and
liabilities into cash.
CITATIONS:
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https://www.bajajfinserv.in/what-is-working-capital
https://www.investopedia.com/terms/w/workingcapital.asp
https://www.wallstreetprep.com/knowledge/change-in-net-working-capital-
nwc/
https://www.invoicefactoring.com/factoring-blog/7-steps-to-improving-your-
net-working-capital/
https://www.investopedia.com/terms/w/workingcapitalmanagement.asp

Unformatted Attachment Preview

Bandibad, Jhoanna Marie L. November 25, 2021 ASSIGNMENT MODULE 11 1. What is working capital? Working Capital is basically an indicator of the short-term financial position of an organization, and is also a measure of its overall efficiency. It also indicates liquidity levels of companies for managing day-to-day expenses and covers inventory, cash, accounts payable, accounts receivable and shortterm debt that is due. 2. What is net working capital? Net Working Capital is the difference between a company’s current assets—such as cash, accounts receivable/customers’ unpaid bills, and inventories of raw materials and finished goods—and its current liabilities, such as accounts payable and debts. It is also a measure of a company’s liquidity, operational efficiency, and short-term financial health. If a company has substantial positive Net Working Capital, then it should have the potential to invest and grow. If a company’s current assets do not exceed its current liabilities, then it may have trouble growing or paying back creditors. It might even go bankrupt. 3. What are the effects of changes in the net working capital? The Change in Net Working Capital (NWC) section of the cash flow statement tracks the net change in operating assets and operating liabilities across a specified period. If the change in Net Working Capital is positive, the company collects and holds onto cash earlier. However, if the change in Net Working Capital is negative, the business model of the company might require spending cash before it can sell and deliver its products or services. 4. How do you improve a firm's net working capital? 7 Steps on improving Net Working Capital: a. Net working capital should be a positive number. b. Get your invoices paid faster. • Billing immediately after the service/ product is completed or delivered. Don’t wait until the end of the month. • Providing an incentive for early payments. • Establishing a penalty for late payments. • Making it easier on clients to make payments by providing an online payment portal. • Automating the billing process and sending out regular reminders. c. Check your inventory. d. Review your vendor options and look for savings. e. Evaluate your fixed expenses. f. Automate and outsource. g. Work with Specialists. 5. How do firms manage its net working capital? • Working capital management is a business strategy designed to ensure that a company operates efficiently by monitoring and using its current assets and liabilities to the best effect. - The primary purpose of working capital management is to enable the company to maintain sufficient cash flow to meet its shortterm operating costs and short-term debt obligations. - The firm monitors the company's assets and liabilities to maintain sufficient cash flow to meet its short-term operating costs and short-term debt obligations. - helps maintain the smooth operation of the net operating cycle, also known as the cash conversion cycle (CCC)—the minimum amount of time required to convert net current assets and liabilities into cash. CITATIONS: https://www.bajajfinserv.in/what-is-working-capital https://www.investopedia.com/terms/w/workingcapital.asp https://www.wallstreetprep.com/knowledge/change-in-net-working-capitalnwc/ https://www.invoicefactoring.com/factoring-blog/7-steps-to-improving-yournet-working-capital/ https://www.investopedia.com/terms/w/workingcapitalmanagement.asp Name: Description: ...
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