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Working Capital Management : PDF

   

Added on  2021-04-19

16 Pages3690 Words161 Views
RUNNING HEAD: BUSINESS FINANCEWORKING CAPITAL MANAGEMENT AND CAPITAL BUDGETING
Working Capital Management : PDF_1
BUSINESS FINANCE1Executive summary The reports include a concise knowledge related to the management of cash, working capital and importance of capital budgeting techniques along with the examples. The first part of the report deals with difference between profit and cash flow as well as states the reason for having shortage of cash in the business. It also explains the terms like working capital, payables, and also the effect of changes in working capital on the cash flow. The second part of the reports concerns with the introduction of capital budgeting, its purpose and process. It also shows the merit and demerits of investment appraisal methods and their use with the help of examples. Overall analysis of cash management and capital budgeting techniques is done followed by the conclusion and recommendation.
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BUSINESS FINANCE2ContentsPart 1...........................................................................................................................................................3Requirement A........................................................................................................................................3Requirement B.........................................................................................................................................4Requirement C.........................................................................................................................................5Part 2...........................................................................................................................................................6Requirement A........................................................................................................................................6Requirement B.........................................................................................................................................9Requirement C.......................................................................................................................................12Conclusion.................................................................................................................................................12References.................................................................................................................................................14
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BUSINESS FINANCE3Part 1Requirement A(a)Profit is a surplus left after deducting total expenses from the total revenue earned. When the liabilities of a company reduce and its assets and sales increase, the company earns profit (Maheshwari, Maheshwari and Maheswari, 2013).Cash flow is the amount of cash flowing in and out of the business. When the cash increases it is known as cash inflow and when it decreases, it is considered as cash outflow (Jury, 2012).Difference between these two is as follows:ProfitCash flowThe amount earned from the sales of units.The in and out flow of cash in the business.The surplus made after paying all the expenses. Determines the cash availability for making various payments.Accrual basis is taken for preparing the profit and loss statementCash basis is taken for preparing cash flow statement.Reflects the profitability of the company.Reflects company’s liquidity and solvency.An amount generated by subtracting total expenditure from total income.A flow of cash in operating, financing and investing activities of the business.(b)A capital required for the daily operations of a business is known as working capital. It is calculated by deducting current assets from current liabilities. In other words, it is definedas the funds available with the firm for its day to day operations (Sagner, 2010).Receivables are basically the debtors of a company, to whom the products and services are provided on credit basis. They are the part of firm’s current assets and are required to pay back the amount given on credit within a specific period of time (Gilbertson, Lehmanand Harmon, 2013).Payables are known as creditors of the business, from whom the company purchases goods and services on credit. They are the current liabilities of the company who get a desirable amount in return for lending their products and services (Saudagaran, 2009).Inventory is also a part of company’s current assets. It means the stock or the items hold by the firm for the purpose of resale. It includes those items which are to be converted
Working Capital Management : PDF_4

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