Momentum's Working Capital


3)Working Capital
: Working Capital is considering what the best way would be in terms of a management for short-term resources and obligations. The concept of this decision focuses on if it is possible to maintain enough capital for payments of its bills including and extra money earned as interest. Current assets and current liabilities are considered as the part of this decision.

The working capital also has a direct relationship with the company’s current assets and current liabilities. The working capital should be positive in order to be considered good. To determine the working capital the current liabilities are subtracted from the current assets. As in the current ratio example the same pattern will show in the working capital. It will decline from 2010 to 2011 and then will become negative in 2012. This pattern shows a decline in Tesla Motors ability to use current resources to repay its debts.

By discounting back the free cash flows (FCF) for each year would allow use to see if this

Analytically, the working capital formula is as follows: Working Capital = Current Assets – Current Liabilities. If a business entity has a negative balance as far as working capital that

Working capital is the money that a company has after paying off its current liabilities and with which it can finance its operating and working capital requirements. The higher a number the better a company is able to pay off its debt and have cash for meeting its financial obligations. The current ratio is used to gauge a company 's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. The current ratio denotes the efficiency of a company 's operating cycle or its ability to turn its products into cash, which is a key requirement for business success. Quick ratio is an indicator of a company 's short-term liquidity. The quick ratio measures a company 's ability to meet its short-term obligations with its most liquid assets, essentially cash and cash equivalents. The higher the quick ratio, the better the financial position of the company in terms of its ability to meet its liabilities.

Cash flow from operations is a key indicator of a company’s financial health, because without the ability

Working capital is the key to a successful business. It is like their blood flow and the manager’s job is to help keep it flowing. Under the Generally Accepted Accounting Principles working capital is simply the difference between a company’s Current Assets, which are cash, inventory, accounts receivable and prepaid items, and Current Liabilities, accounts payable and accrued expenses.

The functions of working capital are to ensure an entity has enough working capital by turning long-term assets in services and revenue. This is done by obtaining cash from different resources (such as supplies and labor), arranging working cost, provision for credit sales and provision of a safety margin.

Working capital is positive, meaning that the company has enough cash, accounts receivable, inventory, and short time investments to cover the current liabilities.

The current ratio is simply the current assets divided by the current liabilities, so is a different way of expressing the working capital. The current ratio today is 2.0, which is a comfortable

Minimum working capital: The company covenants that it will maintain a fixed amount of working capital to cover the firm’s operating cash needs.

Lawrence Sports is a manufacturer of sporting goods facing a fiscal dilemma in the early spring of 2011. Between the months of March and April, the company would experience an impasse within the context of its Current Cash Conversion Cycle. Here, an improved strategy for working capital management is called for.

Nonfinancial working capital represents notes payable, accounts payable and accrued expenses subtracted from accounts receivable and inventory.

Problem StatementInadequate Working Capital • Stagnant growth: It becomes difficult for the company to take advantage of new opportunities or develop new products or adapt to alteration of production techniques needed when new opportunities arise. • Loss of credit opportunity: The inadequacy of working capital funds make firms unable to secure attractive credit opportunities. A company with working capital need not seek for credit opportunities because the firm will be able to finance large stock and can therefore place large orders. • Loss of cash discount: Companies try to persuade their debtors to pay early by offering them a cash discount off the actual price. A company with inadequate working capital funds will not be able to enjoy this benefit. • Loss of goodwill: A company with good reputation can expect cooperation from the trade creditors at the time of financial difficulties. A firm will lose its reputation when it is not in position to honor its short-term obligations. As a result, the firm faces tight credit

The types of current assets and how quickly they can be converted to cash.if the majority of company’s current assets are cash and cash equivalents then a smaller amount of working capital may be sufficient. However if current assets include slow moving inventory items, a greater amount of working capital will be needed.