APC309 SMA

Question 1 a)Statement Evaluation Working capital is the term given to the liquid assets of a company that are capable of being quickly converted into cash to cover day-to-day expenses. Working capital is calculated by taking current liabilities and deducting them from current assets. Examples of current assets include cash, accounts receivable, and inventory. Using this method, one is able to determine the current net worth of the company. A company has positive working capital if the value of its current assets is greater than the value of its current liabilities. On the other hand, a company has negative working capital if the current value of its current liabilities is greater than the current value of its current assets[CITATION CIM21 \l 1033 ]. The objective of effective management of working capital is to strike the best possible balance between investing an excessive amount of money in non-productive assets and keeping the company's working capital at a level that allows it to continue operating profitably[ CITATION Bha04 \l 1033 ]. In order to arrive at this destination, it is essential for businesses to carefully monitor and control their short-term cash flow requirements by keeping track of both their current assets and obligations. A company can improve its ability to manage its working capital by, for instance, reducing the amount of inventory that it keeps on hand, renegotiating payment terms with its suppliers, and keeping a close eye on its receivables. Other strategies include reducing the amount of cash that it invests in short-term investments[ CITATION Hil16 \l 1033 ]. The management of a company's working capital can have a positive impact on a number of aspects of a business, including its cash flow, its financial flexibility, and its protection from insolvency. A company can improve its cash flow and ensure that it has enough cash on hand to pay its short-term obligations, among other benefits, when it does a good job of managing the current assets and liabilities of the company. A company that effectively manages its working capital is in a stronger financial position to take advantage of opportunities for growth and to weather the effects of economic downturns[ CITATION Kim86 \l 1033 ].If a company is successful in managing its working capital, there is a decreased likelihood that the company will exhaust its available cash and be forced to default on its financial obligations. Improving a company's inventory management as well as how it deals with accounts receivable and accounts payable is one way that a company can boost its profits while simultaneously cutting down on unnecessary spending