Working Capital Management Essay Example | Topics and Well Written Essays - 1000 words

Working neat Management - Essay ExampleGross Working Capital It refers to the firms investment in current assets. Current assets in year 2006- 2000000 and in 2007- 2470000. It increased significantly instead of dip in cash because of nearly 71% increment in debtors and 58% increment in inventory of finished goods, hardly cash reserve dipped by 96% and tightens the liquidity countersink of company by the end of 2007. brighten Working Capital It refers to the difference between current assets and current liabilities. In year 2006, NWC-1300000 and in year 2007, 1490000. Net toying capital has been increased YoY but its difficult to assume that how much Working capital is required by the company in the existing transmission line as no industry standard or benchmark standard is not provided. Even the trading cycles are not mentioned regarding finished goods, creditors and debtors, in that respectfore expect the different cycles is difficult and so does the prediction of working ca pital.If we checkout the current asset to fixed assets ratio as it helps in determining the optimum direct of current assets so that the wealth of shareholders is maximized. As the firms output and sales increase, the need for current assets increases. Generally, current assets do not increase in direct isotropy to output current assets may increase at a declining rate with output. This relationship is based upon the notion that it takes a greater proportional investment in current assets when unaccompanied few units of output are produced than it does later on when firm can use its current assets more efficiently. For year 2006, CA/FA ratio is 0.55For year 2007, CA/FA ratio is 0.58 Company has nearly same ratio in both the years that means company increases its assets as per the requirement. That can be analyzed by taking ratio of working capital requirement as a percentage of turnovers, which is nearly 27% in 2006 and nearly 23% in 2007. Therefore it can be said requirement of current assets has been increased proportionately.Its difficult to assume how much is required to run the business as any standards are not given and its difficult to presume for an industry. But it can be said that Adorama net working capital has been increased level off though company might face problem in quick solvency (which includes mainly within a week convertible current assets) but if we suck up overall situation of working capital needs company is in sound position even it has overdraft problem but sound position of debtors and inventory can sort it out, certainly company might face liquidity problem as company has very less to meet immediate demands but money can be raised by mortgaging debtors to meet immediate requirements.Overtrading is mainly matching sales and production cycles, it takes place when a business accepts work and tries to complete it, but finds that fulfillment require greater current assets or working capital. Overtrading is a common problem in busin esses and it often happens because of some distraction or any unprecedented cause. If you see Adorama has net working capital of 1490000 in 2007, which is enough to meet the requirements but in its cash kitty it has only 20000. Therefore, passing a judgment is difficult and highly depends upon the nature of business, position of different cycles( debtors and inventory mainly) but still I would like to say that there is certainly problem of cash crunch or current