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4. Calculating Working Capital Controlling the Components of Working Capital Importance of Working Capital Working Capital Introduction to Working Capital > Working Capital Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance?campaign_content=book_192_section_122&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=di rect&utm_source=boundless

5. WC is current assets minus current liabilities. Companies want positive WC. WC is an signal of whether or not the company has enough assets to turn into cash to pay upcoming expenses or debts. WC is a measurement of liquidity and is not a guarantee that a company can pay for its liabilities. Calculating Working Capital Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/introduction-to-working-capital-17/working-capital-122/calculating-working- capital-500- 1472?campaign_content=book_192_section_122&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boun dless Buying Food View on Boundless.com Introduction to Working Capital > Working Capital

6. Increasing current assets or decreasing current liabilities increases WC, and vice versa. Four common mechanisms for controlling WC are cash management, inventory management, debtors management, and financing management. Having too little WC impairs a company's ability to meet it's financial obligations, while having too much WC can also be bad because it means that there are assets that are not being invested in the long-term. Controlling the Components of Working Capital Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/introduction-to-working-capital-17/working-capital-122/controlling-the- components-of-working-capital-501- 8313?campaign_content=book_192_section_122&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boun dless Walmart CFO View on Boundless.com Introduction to Working Capital > Working Capital

7. WC is important for large companies' ability to borrow, increase their share price, pay expenses and short-term debts. WC is important for small companies that cannot access financial markets to borrow, and for start-ups that need to survive until they break even. WC cannot guarantee whether a company is financially sound, but it gives some insight. Importance of Working Capital Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/introduction-to-working-capital-17/working-capital-122/importance-of-working- capital-502- 1473?campaign_content=book_192_section_122&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boun dless Cash View on Boundless.com Introduction to Working Capital > Working Capital

8. Free to share, print, make copies and changes. Get yours at www.boundless.com Appendix

9. Key terms Current Asset An asset on the balance sheet, such as cash, accounts receivable, and inventory that is expected to be sold or otherwise used up in the near future, usually within one year or one business cycle, whichever is longer. current liabilities All liabilities of the business that are to be settled in cash within the fiscal year or the operating cycle of a given firm, whichever period is longer. liquidity Availability of cash over short term: ability to service short-term debt. operating liquidity The ability of a company or individual to quickly convert assets to cash for the purpose of paying operating expenses. working capital A financial metric that is a measure of current assets of a business that exceeds its liabilities and can be applied to its operation. Free to share, print, make copies and changes. Get yours at www.boundless.com Introduction to Working Capital

10. Buying Food Most purchases, including food, must be made with a specific asset–cash. Not all current assets can be used to pay off expenses of debts. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr. "All sizes | buying vegetables | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/icanchangethisright/37990213/sizes/o/in/photostream/ View on Boundless.comCC BYhttp://www.flickr.com/photos/icanchangethisright/37990213/sizes/o/in/photostream/View on Boundless.com Introduction to Working Capital

11. Walmart CFO Charles Holley, the Chief Financial Officer (CFO) of Wal-Mart, is in charge of making sure all of Wal-Mart's assets are allocated as optimally as possible. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr. "Walmart's EVP and CFO Charles Holley Discusses Finance | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/walmartcorporate/5793744780/ View on Boundless.comCC BYhttp://www.flickr.com/photos/walmartcorporate/5793744780/ View on Boundless.com Introduction to Working Capital

12. Cash Liquidity is a measurement of a company's ability to quickly turn assets into cash. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr. "All sizes | Cash | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/bfishadow/4237025430/sizes/m/in/photostream/ View on Boundless.comCC BYhttp://www.flickr.com/photos/bfishadow/4237025430/sizes/m/in/photostream/View on Boundless.com Introduction to Working Capital

13. Free to share, print, make copies and changes. Get yours at www.boundless.com Introduction to Working Capital A company has $20,000 in cash, $10,000 in accounts receivable and $45,000 in fixed assets. It has $12,5000 in accounts payable. It owes $50,000 in two years on a note that has an annual interest payment of $5,000. What is its working capital? A) $7,500 B) $17,500 C) $57,500 D) $12,500

14. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Introduction to Working Capital A company has $20,000 in cash, $10,000 in accounts receivable and $45,000 in fixed assets. It has $12,5000 in accounts payable. It owes $50,000 in two years on a note that has an annual interest payment of $5,000. What is its working capital? A) $7,500 B) $17,500 C) $57,500 D) $12,500

15. Free to share, print, make copies and changes. Get yours at www.boundless.com Introduction to Working Capital A company wants to adjust its working capital by adjusting its current liabilities. Therefore the company should focus on its ____. A) Debtors management. B) Inventory management. C) Financing management. D) Cash management.

16. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Introduction to Working Capital A company wants to adjust its working capital by adjusting its current liabilities. Therefore the company should focus on its ____. A) Debtors management. B) Inventory management. C) Financing management. D) Cash management.

17. Free to share, print, make copies and changes. Get yours at www.boundless.com Introduction to Working Capital Complete the following statement so that it is always true: If a company has significant working capital, _____. A) it is guaranteed to have enough cash to pay all of its expenses. B) it will probably be able to obtain credit at a lower interest rate. C) the company is growing at the highest rate possible. D) All of these answers.

18. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Introduction to Working Capital Complete the following statement so that it is always true: If a company has significant working capital, _____. A) it is guaranteed to have enough cash to pay all of its expenses. B) it will probably be able to obtain credit at a lower interest rate. C) the company is growing at the highest rate possible. D) All of these answers.

19. Attribution Wikipedia. "Working capital." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Working_capitalCC BY-SA 3.0http://en.wikipedia.org/wiki/Working_capital Wikipedia. "Current liabilities." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Current_liabilitiesCC BY-SA 3.0http://en.wikipedia.org/wiki/Current_liabilities Wiktionary. "liquidity." CC BY-SA 3.0 http://en.wiktionary.org/wiki/liquidityCC BY-SA 3.0http://en.wiktionary.org/wiki/liquidity Wikipedia. "Current Asset." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Current%20AssetCC BY-SA 3.0http://en.wikipedia.org/wiki/Current%20Asset Wikipedia. "Working capital." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Working_capitalCC BY-SA 3.0http://en.wikipedia.org/wiki/Working_capital Wikibooks. "Sustainable Business/Can you afford to start up?." CC BY-SA 3.0 http://en.wikibooks.org/wiki/Sustainable_Business/Can_you_afford_to_start_up%253F#Working_capitalCC BY-SA 3.0 http://en.wikibooks.org/wiki/Sustainable_Business/Can_you_afford_to_start_up%253F#Working_capital Wiktionary. "working capital." CC BY-SA 3.0 http://en.wiktionary.org/wiki/working+capitalCC BY-SA 3.0http://en.wiktionary.org/wiki/working+capital Boundless Learning. "Boundless." CC BY-SA 3.0 http://www.boundless.com//finance/definition/operating-liquidityCC BY-SA 3.0http://www.boundless.com//finance/definition/operating-liquidity Wikipedia. "Working capital." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Working_capitalCC BY-SA 3.0http://en.wikipedia.org/wiki/Working_capital Wikipedia. "Current Asset." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Current%20AssetCC BY-SA 3.0http://en.wikipedia.org/wiki/Current%20Asset Wikipedia. "Current liabilities." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Current_liabilitiesCC BY-SA 3.0http://en.wikipedia.org/wiki/Current_liabilities Free to share, print, make copies and changes. Get yours at www.boundless.com Introduction to Working Capital