A. Why might a business not want to hold too much or too little working capital? (Remember, working capital is current assets, not working capital minus current assets.)
Explain if the company that you selected for Assignment 1 has too much, too little, or just the right amount of working capital? How did you make this determination?
B. What are two (2) practical actions that the firm you selected for Assignment 1 can take to shorten its cash conversion cycle? Does the company need to shorten its cash conversion cycle and how do you know that (calculate the cash conversion cycle using the attached model)?
C. What working capital financing strategy is used by the company that you selected for Assignment 1. What actual financial data support the conclusion? Make sure that you complete the analysis using the attached Excel model that examines a firm’s working capital financing strategy.
Note: The completed models are to be submitted with the analyses.
Working Capital and Net Working Capital: What’s the Difference?
This week’s Discussion deals primarily with Working Capital. Many students get confused with the distinction between Working Capital and Net Working Capital.
Chapter 16 of the textbook does a good job of explaining the difference: Current Assets ae often referred to as Working Capital, since they represent the resources needed for the day-to-day operations of the firm’s long-term capital investments. Current assets are also used to satisfy short-term obligations, or current liabilities. (In contrast), the amount by which current assets exceed current liabilities is referred to as Net Working Capital.
For the purpose of this week’s classroom discussion, we are interested in Working Capital (Current Assets).
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