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What shall be the firm repercussions if a firm has paucity of working capital and excess of working capital?
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What is working capital gap?
In order to reduce the dependence of businesses on banks for working capital, ceiling on bank credit to individual firms has been prescribed. Accordingly, businesses have to compute the current assets requirement on the basis of stipulations as to size. So, flabby inventory, speculative inventory cannot be carried on with bank finance. Normal current liabilities, other than bank finance, are also worked out considering industry and geographical features and factors. Working capital gap is the excess of current assets as per stipulations over normal current liabilities (other than bank assistance). Bank assistance for working capital shall be based on the working capital gap, instead of the current assets need of a business. This type of financing assistance by banks was introduced on the basis of recommendations of Tandon Committee
List and define two types of bank reserves?
Secondary Reserves- Assets that are invested in safe, marketable, short-term securities.Primary Reserves- Cash required to operate a bank.here is a third one...Excess Reserves- Capital reserves held by a bank in excess of what is required.
What is shareholder's surplus?
Capital surplus is a term that frequently appears as a balance sheet item as a component of shareholders' equity. Capital surplus is used to account for that amount which a firm raises in excess of the par value (nominal value) of the shares (common stock).
Total amount of contributed capital?
This is what I found on internet. Payments made in cash or property to a corporation by its stockholders either to buy capital stock, to pay an assessment on the capital stock, or as a gift. Also called paid-in capital. The contributed or paid-in capital of a corporation is made up of capital stock and capital (or contributed) surplus, which is contributed (or paid-in) capital in excess of http://www.answers.com/topic/par value or http://www.answers.com/topic/stated-value. Donated capital and http://www.answers.com/topic/donated-surplus are freely given forms of contributed (paid-in) capital, but http://www.answers.com/topic/donated-stock refers to fully paid (previously issued) capital stock that is given as a gift to the issuing corporation.
What is funding analysis?
hat is a Fund? Fund Meaning Money that is set aside for a particular purpose. To provide money for paying off the interest or principal of (a debt). To finance, using long-term debt or Capital. Synonyms Finance Support Back Furnish Fund = Capital We use the phrase "We need additional funds" to mean we need additional capital whether be it for acquiring assets, clearing liabilities or for meeting expenses. This indicates that Fund means Capital. All capital of the organisation whether owned or loaned is capable of being called Fund. Fund is Capital freely available for use A Fund by its nature would be capital kept aside with a purpose. The fund should be capable of being used for the specified purpose at any time. Fund, in the topic Funds Flow Analysis, is a general purpose fund. It represents capital resource that would be available to the organisation for general purposes. It would be capable of being used in any manner the organisation prefers without any restriction/hindrance. Fund is Capital supported by Current Assets Every rupee of a liability/capital is supported by a rupee of an asset. Every rupee of an asset is financed by a rupee of a liability. Consider a new business that has been started with a capital of Rs. 2,00,000 brought in cash. The organisation's Balance Sheet immediately after this first transaction would be: Balance Sheet of M/s ___ as on 31st December __ Liabilities Amount Assets Amount Capital 2,00,000 Cash 2,00,000 2,00,000 2,00,000 Liabilities supported by Assets : Capital is supported by cash Assets financed by Liabilities : Cash is financed by Capital The next day, Furniture worth Rs. 1,00,000 and Stock Worth Rs. 50,000 have been bought for cash. The Balance Sheet after these transaction would be : Balance Sheet of M/s ___ as on 31st December __ Liabilities Amount Assets Amount Capital 2,00,000 Cash Furniture Stock 50,000 1,00,000 50,000 2,00,000 2,00,000 Liabilities supported by Assets : Capital is supported by Cash, Furniture and Stock Assets financed by Liabilities : Cash, Furniture and Stock are financed by Capital Capital/Cash is employed in purchasing Assets Since Cash used in purchasing Furniture was financed by Capital, we can say that Furniture is financed by Capital. Whereby, we say that capital is employed in purchasing furniture. On converting an asset into a new one, the liability that was being supported by the replaced asset would now be supported by the new asset. Therefore, on employing capital, the assets supporting capital change. Capital that can be employed To be able to employ capital for any purpose, the asset that is supporting it should be easily convertible. Fund is Capital supported by easily convertible Assets Fund is capital freely available for being used in any which way the organisation intends i.e. for long term or short term needs. To enable such usage, funds (capital that we call funds) should be supported not just by assets which are convertible but by assets that are easily convertible. Current Assets are easily convertible Current Meaning Belonging to the present time. Not overdue; occurring this period. Synonyms Present Existing Recent In Progress Current Assets are assets that are capable of being liquidated in a time span of a year or less. They represent easily convertible assets. Fund is capital supported by easily convertible assets + Current Assets are easily convertible assets. ? Fund is capital supported by Current Assets Funds exclude Current Liabilities Current Liabilities Current liabilities are liabilities that are to be repaid/cleared within the near future (a short period of time). Current liabilities are considered to be supported by current assets as they are similar in nature i.e. both of them have a short life span (a year or less). Current liabilities have a charge on current assets. Fund is capital that is freely available for use for any purpose the organisation intends without any hindrance/restriction. All the capital that is supported by current assets cannot be said to be freely available for use without any hindrance. We do not consider Current liabilities to be representing capital that is freely available for use, since they are to be repaid within a short time span Therefore, capital supported by current assets excluding current liabilities would only be considered as fund. Fund = Current Assets - Current Liabilities Fund is freely available capital + Fund is capital supported by Current Assets + Fund is capital supported by current assets excluding current liabilities [Current assets in excess of those supporting current liabilities support funds.] ? Funds = Current Assets - Current Liabilities Fund = Working Capital Excess of Current Assets over Current Liabilities is Working Capital ? Working Capital = Current Assets - Current Liabilities. ? Fund = Working Capital What is Funds Flow? Flow Meaning To move or run smoothly with unbroken continuity like in the case of a fluid. Something that resembles a flowing stream in moving continuously Synonyms Stream Gush Course Funds Flow Fund being working capital, Funds flow indicates the flow of working capital between two points of time. It involves information relating to the various transformations undergone by working capital (i.e. the changes that have taken place in working capital) during the period involved between the two points of time. Every change in working capital is associated with (or is on account of) a flow either an inflow or an outflow. Thus, funds flow involves information relating to the inflows and outflows that resulted in a change in working capital between the two points of time. When do we say that there is a flow of fund? Fund (Working Capital) in an Organisation is like water in a reservoir. The Fund is analogous to water and the reservoir to the organisation. There is a change whenever there is a flow There would be a change in fund (working capital) whenever there is a flow (in/out) of fund. An inflow would result in an increase and An outflow would result in a decrease. There is a flow whenever there is a change A change in fund (working capital) in the organisation is an indication of flow of fund. An increase would indicate an inflow and A decrease would indicate an outflow. Hidden/Masked flows When there is an inflow followed by an outflow of the same magnitude, there may not be a change in fund (working capital). An inflow would result in an increase in fund which would be set off by an outflow resulting in a decrease. Since the magnitude is the same, after the two transactions, the fund seems to be unchanged. In such situations, to notice the change, we will have to break down the transactions into two instead of viewing them in total.
What is optimal working capital?
Optimal working capital is that point where exact amount of working capital is available to run day to day activities and there is no excess or shortage of working capital at any point.
What is the optimum working capital?
Optimum working capital is that point where working capital is neither short from requirements nor excess working capital available at any time during fiscal year.
working capital?
working capital is the excess of current assets over current liabilities. if current assets are more than current liabilities, the company has surplus working capital, which is a good sign of liquidity. working capital is calculated as follows:Working capital = Current assets - Current liabilities
What type of account is paid in capital in excess of par?
Paid in capital in excess of par is called "Share premium account"
Managing short term asset and liabilities is sometimes called ------- management?
Management of short term assets (current assets) and short term liabilities (current liabilities) is commonly known as working capital management.Working capital is a requirement of funds to meet the day to day working expenses. In a simple term working capital is an excess of current assets over the current liabilities. In working capital management we focus more on receivables management, cash management and inventory management etc. Proper way of management of working capital is highly essential to ensure a dynamic stability of the financial position of an organization.
Is the excess of current assets over current liabilities is called working capital?
true per my accounting book these wiki answers have helped me pass my tests!!
What type of account is paid-in capital in excess of par?
additional paid in capital
Capital paid in excess of par common stock?
Capital amount paid for excess of par value of common stock is called "Share premium amount" which is also part of capital of business.
What does paid in capital account represent?
par value of common and preferred stock+additional paid in capital(amount in excess of par)
What are the characteristics of working capital?
Working capital is a fundamental concept in financial management, and it possesses several key characteristics that are important for businesses to understand and manage effectively. Here are the primary characteristics of working capital: Short-Term Nature: Working capital deals with assets and liabilities that are expected to be converted into cash or settled within a relatively short period, usually one year or less. This short-term focus distinguishes it from long-term capital. Liquidity: Working capital includes assets that can be quickly converted into cash or used to pay off short-term liabilities. Maintaining sufficient liquidity in the form of cash or easily convertible assets is crucial for covering immediate financial obligations. Operating Cycle: It is closely tied to a company's operating cycle, which is the time it takes to convert raw materials into finished products, sell them, and collect cash from customers. Effective management of the operating cycle can optimize working capital. Cyclical Nature: Working capital needs may fluctuate throughout the business cycle. For instance, a retailer may require more working capital to support increased inventory during the holiday season. Dynamic and Variable: The working capital requirements of a business can change over time due to factors like growth, seasonality, market conditions, and economic cycles. Companies must adapt their working capital strategies accordingly. Risk Management: Inadequate working capital can lead to financial instability, while excess working capital can result in reduced profitability. Striking the right balance is crucial for risk management and sustainable operations. Impact on Creditworthiness: Lenders and investors often assess a company's working capital position when evaluating its creditworthiness and financial health. A strong working capital position can enhance a company's ability to secure financing. Working Capital Ratio: The working capital ratio, calculated as current assets divided by current liabilities, is a key financial metric used to assess a company's liquidity and short-term financial health. A ratio above 1 indicates positive working capital. Efficiency Indicator: Managing working capital efficiently can improve operational efficiency by reducing costs associated with carrying excess inventory or financing short-term debt. Strategic Management: Working capital management is a strategic activity that involves decisions about cash flow, inventory levels, accounts receivable, and accounts payable. Effective management can enhance profitability and competitiveness. Seasonality Considerations: Some businesses may experience seasonal variations in working capital needs, requiring careful planning and management to meet peak demand periods. Continuous Monitoring: Given its dynamic nature, working capital requires continuous monitoring and adjustment to ensure that the company remains financially stable and can meet its short-term obligations. In summary, working capital is a dynamic and crucial aspect of a company's financial management, influencing its liquidity, financial health, and ability to operate effectively. Effective working capital management involves maintaining an appropriate balance between current assets and liabilities to support day-to-day operations and strategic growth.
the excess of revenue over the expenses incurred in earning the revenue is called capital?
False
What is working capital gap?
In order to reduce the dependence of businesses on banks for working capital, ceiling on bank credit to individual firms has been prescribed. Accordingly, businesses have to compute the current assets requirement on the basis of stipulations as to size. So, flabby inventory, speculative inventory cannot be carried on with bank finance. Normal current liabilities, other than bank finance, are also worked out considering industry and geographical features and factors. Working capital gap is the excess of current assets as per stipulations over normal current liabilities (other than bank assistance). Bank assistance for working capital shall be based on the working capital gap, instead of the current assets need of a business. This type of financing assistance by banks was introduced on the basis of recommendations of Tandon Committee
