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Why does a firm need to maintain an adequate amount of working capital?
Wiki User
∙ 9y ago
An adequate amount of working capital is needed within a firm so that everyday expenses can be taken care of. Electric bills, payroll, and rental payments have to be paid to keep a firm in business.
Wiki User
∙ 9y ago
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What is the importance of working capital for a manufacturing firm?
Working capital is the life blood and nerve centre of a business. No business can be run successfully without adequate amount of working capital. The advantages of maintaining adequate working capital are as follows:Continuous Production: Adequate working capital ensures regular supply of raw materials and continuous production.Solvency and Goodwill: Adequate working capital enables prompt payment to creditors. This helps in creating and maintaining goodwill.Easy Loans: A concern having sufficient working capital enjoys high liquidity and good credit standing. Hence it can secure loans from banks and others on easy and favorable terms.Cash Discounts: Adequate working capital enables a concern to avail cash discounts on the purchases, leading to a reduction in costs.Regular Payment of Expenses: A company which has ample working capital can make regular payment of salaries, wages and other day-to-day commitments. Such prompt payment raises the morale of employees and increases their efficiency. As a result, costs are minimized and profit increases.Exploitation of Market Conditions: A concern with adequate working capital can exploit favorable market conditions. It can buy its requirements of raw materials in bulk when the market price is lower. Similarly, it can hold stock of finished goods to realise better prices.: Adequate working capital enables a concern to face business crisis such as depression because during such periods there is much pressure on working capital.High Return on Investments: Adequacy of working capital facilitates continuous production and effective utilization of fixed assets. Because of this, the concern is able to generate more profits and ensure higher return on investments.-By Kuldeep B. Shukla
What is the advantage of maintaining an adequate working capital in a small business?
The advantage of maintaining an appropriate amount of working capital is the ability to take advantage of opportunities that exist. If the company doesn't have this money, then the competition may take advantage and gain more market share.
What is adequate insurance?
Adequate insurance depends on your specific situation; the Needs Calculator will help you determine the adequate amount for your specific needs.
Working Capital Financing?
form_title=Working Capital Financing form_header=Stay competitive in a growing market by obtaining working capital financing for your business. Total financing amount needed?*= _Insert amount[50] Time frame needed?*= {Within 30 days, 1 to 3 months, 3 to 6 months, Longer than 6 months, Not Sure} What is your annual revenue?*= _Insert amount[50] How would you rate your own credit?*= [] Poor [] Fair [] Good [] Excellent
What are the objectives of financial planning?
The main objective of financial planning are: (a) To ascertain the amount of fixed capital as well as the working capital required in a given period (b) to determine the amount to be raised through various sources using a judicious debt equity mix (c) to ensure that the required amount is raised on time at the lowest possible cost (d) to ensure adequate liquidity so that there are no defaults in payments and all contingencies (any unforeseen expenditure) are met without difficulty; and (e) To ensure optimal use of funds so that the business is neither starved of funds not has unnecessary surplus funds at any point of time
Why is it important for humans to have an adequate amount of water?
It is important to maintain a level of water because without it a person can dehydrate. It can causes organs to shut down and stop working.
What is the advantage of maintaining an adequate working capital in a small business?
The advantage of maintaining an appropriate amount of working capital is the ability to take advantage of opportunities that exist. If the company doesn't have this money, then the competition may take advantage and gain more market share.
What is the importance of working capital for a manufacturing firm?
Working capital is the life blood and nerve centre of a business. No business can be run successfully without adequate amount of working capital. The advantages of maintaining adequate working capital are as follows:Continuous Production: Adequate working capital ensures regular supply of raw materials and continuous production.Solvency and Goodwill: Adequate working capital enables prompt payment to creditors. This helps in creating and maintaining goodwill.Easy Loans: A concern having sufficient working capital enjoys high liquidity and good credit standing. Hence it can secure loans from banks and others on easy and favorable terms.Cash Discounts: Adequate working capital enables a concern to avail cash discounts on the purchases, leading to a reduction in costs.Regular Payment of Expenses: A company which has ample working capital can make regular payment of salaries, wages and other day-to-day commitments. Such prompt payment raises the morale of employees and increases their efficiency. As a result, costs are minimized and profit increases.Exploitation of Market Conditions: A concern with adequate working capital can exploit favorable market conditions. It can buy its requirements of raw materials in bulk when the market price is lower. Similarly, it can hold stock of finished goods to realise better prices.: Adequate working capital enables a concern to face business crisis such as depression because during such periods there is much pressure on working capital.High Return on Investments: Adequacy of working capital facilitates continuous production and effective utilization of fixed assets. Because of this, the concern is able to generate more profits and ensure higher return on investments.-By Kuldeep B. Shukla
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.
How do you determine the amount of working capital a company should have on hand?
You can determine the amount of working capital a company should have on hand at www.googobits.com. Another good website is www.work.com/calculating-your-working-capital-needs-521/
What is the difference between gross working capital and net working capital?
Gross working capital is sum of current assests of a company and does not account for current liabilities. However, Net working capital is difference of Current assets and current liabilities. Net working capital = Current Assets - Current LiabilitiesA change in the total amount of current assets without a change of the amount in current liabilities will result to a change in the amount of net working capital. Similarly, a change in the total amount of current liabilities without an identical change in the total amount of current assets will cause a change in the net working capital.
Why gross working capital is equal to current assets?
Gross working capital is the amount which is equal to current assets which are available for day to day working but net working capital is that amount which remains after deducting current liabilities from current assets it means that amount which even remains after deducting current liabilities.
How do YOU calculate interest on working capital at the rate of 12 percent per annum?
(Amount of working capital/100)*12
What is difference between gross working capital and net working capital?
Gross working capital is the amount company invested in current assets while net working capital is the difference between current assets and current liabilities.
What is the capital adequacy management?
capital adequacy management is that the manager must decide the amount of capital that bank should maintain and then acquire the needed capital. By Alamzeb Ahmadzai
What is authorized capital?
Authorized capital is the capital to which an organization is authorised to use in the business and maximum amount that can be used for the working of organization.
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
