Category Archives: THEORY OF WORKING CAPITAL MANAGEMENT

Nature of Trade off

Nature of Trade off If a firm wants to increase its profitability, it must also increase its risk. If it is to decrease must decrease profitability. The trade off these variables is that regardless of how increases its profitability through the manipulation of working capital. the consequent corresponding increase in risk as measured by the level of NWC. The effects of changing current assets and current liabili

TRADE OFF BETWEEN PROFITABILITY AND RISK

TRADE OFF BETWEEN PROFITABILITY AND RISK In evaluating a film’s NWC position, an important consideration is the trade off between probity and risk. In other words, the level of NWC has a bearing on profitability as well as risk term profitability used in this context is measured by profits after expenses. The term defined as the probability that a firm will become technically insolvent so that it will not b

The Common Definition of NWC and its Implications

The Common Definition of NWC and its Implications NWC is commonly defined as the difference between capital assets and current liabilities. Efficient working capital management requires firms should operate with some amount of NWC, the exact amount varying from firm to firm depending, among other things, on the nature of industry. The theoretical justification for the of NWC to measure liquidity is based on th

Concepts and Definitions of Working Capital

Concepts and Definitions of Working Capital There are two concepts of working capital: gross and net. The term gross working capital, also referred to as working capital, means the total current assets. The term net working capital can be defined in two ways: (i) the most common definition of net working capital (NWC) is the difference between current assets and current liabilities: and (ii) alternate definition

NATURE OF WORKING CAPITAL

NATURE OF WORKING CAPITAL Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelationship that exists between them. The term current assets refer to those assets which in the ordinary course of business can be, or will be, converted into cash within one year without undergoing a diminution in value and without dis

THEORY OF WORKING CAPITAL MANAGEMENT

THEORY OF WORKING CAPITAL MANAGEMENT INTRODUCTION This Chapter analyses the theory of working capital management and is divided into four sections. The first section explains the nature of working capital in terms of the basic concepts, strategies and policies of working capital management. The trade off between profitability and risk is elaborated in Section 2. The determination of financing mix is explained i