3 pages/≈825 words
Accounting, Finance, SPSS
Working Capital and Capital Budget Techniques Employed by Georges Trains (Movie Review Sample)
Management of Working Capital Case Study: "Georgeâ€™s Trainsâ€
Management of Working Capital
Working capital can be simply defined as the money available to an organization to carry out its day-to-day operations. The ratio can be used to determine the liquidity of a company as it takes into account all current assets and liabilities such as inventory, accounts receivable, cash, portion of debts in a year, accounts payable and any other short-term accounts. An organizationâ€™s working capital reflects the results of activities carried out during the year including debt management, revenue collection, inventory management, and payments to suppliers. A positive working capital depicts that the company can pay off its short-term liabilities with immediate actions. Negative working capital, on the other hand, indicates that the firm cannot manage its current liabilities and can therefore not offset its short-term debts.
The reasons as to why analysts are sensitive to decreases in working capital are because this drop signifies that the business is being overleveraged and is in constant struggles to grow and develop sales and is thus paying bills at higher rate compared to the rate which it collects its receivables. On the other hand, an increased working capital ratio represents the opposite outcome. It means that the company is paying less for the receivables but receiving much more from accounts receivable (Firth, 1976). Working capital can be further used to evaluate the accounts receivable ratios, current ratios and quick ratio.
When considering to introduce a new project, a business must determine whether the project can return on initial investments and subsequently generate a profit. Capital budgeting determines whether the business is worth of the project and helps a business firm to determine if it will make satisfying returns the owner and investors. Some considerations made in capital budgeting include the payback period, net present value, internal rate of return and discount rate.
George Oliex, the proprietor of George Trains, applies both working capital processes and capital budgeting practices to maintain the firm in the short-term and subsequently through to the long-term. The working capital factors that he keenly considers include the bank loan that he uses to start the business and establish its reputation. Another working capital aspect that he seems to consider is the inventory account. W...
Get the Whole Paper!
Not exactly what you need?
Do you need a custom essay? Order right now:
- Working Capital and Capital Budget Techniques Employed by Georges TrainsDescription: The reasons as to why analysts are sensitive to decreases in working capital are because this drop signifies that the business is being overleveraged...3 pages/≈825 words| 3 Sources | APA | Accounting, Finance, SPSS | Movie Review |