Advertisements
Advertisements
Question
Explain the following as factors affecting the requirement of working capital:
The credit allowed and availed
Solution
The credit allowed and availed: Credit means allowing the sale of goods without immediate cash payment, and hence, the number of debtors increases and in turn the requirement of working capital will increase. A strict credit policy will reduce the requirement of working capital.
Credit allowed
Liberal credit policy ⇒ High working capital
Strict credit policy ⇒ Low working capital
Credit availed
Difficult to avail credit from suppliers ⇒ High working capital
Easy to avail credit from suppliers ⇒ Low working capital
APPEARS IN
RELATED QUESTIONS
Answer the following question:
The Return on Investment (ROI) of a company ranges between 10 - 12% for the past three years. To finance its future fixed capital needs, it has the following options for borrowing debt:
Option ‘A’: Rate of interest 9%
Option ‘B’: Rate of interest 13%
Which source of debt, ‘Option A’ or ‘Option B’, is better? Give reasons in support of your answer. Also, state the concept being used in taking the decision.
Explain the following as factor affecting the requirements of fixed capital:
Choice of technique
Explain the following as factors affecting the requirements of fixed capital:
Technology upgradation
Explain the following as factors affecting the requirements of fixed capital:
Financing alternatives
Explain the following as factors affecting the requirements of working capital:
Seasonal factors
How does working capital affect both the liquidity as well as profitability of a business?
What is working capital? Discuss five important determinants of working capital requirement?
Fixed Capital Working Capital
Answer the question.
Briefly explain any four types of working capital required by a business concern.
What is meant by capital gearing ratio?
Why is working capital also known as circulating capital?
Companies with a higher growth potential are likely to
A fixed asset should be financed through
Working capital is calculated as?
______ refers to the decisions regarding where to invest so as to earn the highest possible returns on investment.
Assertion (A): A commercial bill is a bill of exchange used to finance the working capital requirements of business firms.
Reason (R): Commercial bill is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms.
Read the following text and answer the following question on the basis of the same:
Mr. A. Bose is running a successful business. Mr. Bose is the owner of R. K. Cement Ltd. Mr. Bose decided to expand his business by acquiring a Steel Factory. This required an investment of Rs. 60 crores. To seek advice in this matter, he called his financial advisor Mr. T. Ghosh who advised him about the judicious mix of equity (40%) and Debt (60%). Employ more of cheaper debt may enhance the EPS. Mr. Ghosh also suggested him to take loan from a financial institution as the cost of raising funds from financial institutions is low. Though this will increase the financial risk but will also raise the return to equity shareholders. He also apprised him that issue of debt will not dilute the control of equity shareholders. At the same time, the interest on loan is a tax-deductible expense for computation of tax liability. After due deliberations with Mr. Ghosh, Mr. Bose decided to raise funds from a financial institution.
"Mr. T. Ghosh who advised him about the judicious mix of equity (40%) and Debt (60%)." The proportion of debt in the overall capital is called ______.
When XYZ company acquired a toy manufacturing company, it paid a large amount for the goodwill. Which source of business funds of XYZ company was impacted?
