Module 5

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  Amity School of Business 1 Amity School of Business   BBA, Semester 3FINANCIAL MANAGEMENT 1  Amity School of Business 2 Outline of Module   Working Capital: Meaning & Concept.  Characteristics of current assets.  Components of Working Capital.  Factors Affecting Working Capital Requirement.  Operating cycle analysis.  Amity School of Business 3  Working Capital: Meaning   A measure of both a company's efficiency and its short-term financial health. The working capital ratio iscalculated as follows:  Working Capital= Current Assets – Current Liabilities  Positive working capital means that the company is ableto pay off its short-term liabilities. Negative workingcapital means that a company currently is unableto meet its short-term liabilities with its current assets(cash, accounts receivable and inventory).  Amity School of Business 4  Working Capital Concepts  Gross working capital is the total investment made incurrent assets.  Net working capital is the difference between current assetsand current liabilities.  Net Working capital = Current assets – Current Liabilities.  Working Capital management: The administration of the firm’s current assets and the financing needed to support currentassets.The key difference between the long term financing and workingcapital is the timings of the cash.
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