Page 1 - LN 2416065010115

CH-5: BUSINESS ARITHMETIC

CODE: 241605010115

TOPIC:WORKING CAPITAL MANAGEMENT AND INVENTORY CONTROL

NOTES:

WORKING CAPITAL:

Gross working capital = Total of all current assets (Total Current Assets = Debtors + Stock + Cash + Short
term investment )

Total Current Liabilities = Sundry Creditors + Dividend Payable + Tax + Short Term loan

Net Working Capital = Current assets – Current liabilities

1. Cash conversion cycle: (CCC or Operating Cycle) is the length of time between a firm’s purchase
of inventory and the receipt of cash from accounts receivable. It is the time required for a
business to turn purchases into cash receipts from customers.
CCC represents the number of days a firm’s cash remains tied up within the operations of the
business.
Money needed to fund the normal, day- to-day operations of a business is known as the working
Capital.

Adequate working capital is required for the smooth running of any business.

It is required by a business for meeting day to day business expenses to complete a business cycle or
the operating cycle.

The working capital of a business keeps on circulating or changing since the money circulates in various
forms of assets in a continued manner.