Question 1 Define each of the following terms:

a. Working capital
Working capital, also known as capital Work (NWC), is the difference between current assets
of a company, such as cash, accounts receivable (unpaid customers) and inventory items, and
current liabilities, such as Accounts due paid. Work yeNet is a recognition of the company and
thus the difference between current assets and current debt. In many cases these figures are the
same and are found in the company's cash and cash accounts, as well as lower expense
accounts.
Operating income is a specific function of a company, its efficiency and its short-term financial
position. If you are a large company funds efficient, we should be strong investment and grow.
If the company's current assets do not exceed its current liabilities, then there may be a problem
of growing or restoring creditors, or even bankruptcy.

b. net working capital

Net net capital is the combined sum of all current assets and liabilities. It is used to measure
short-term business growth, and can also be used to gain an overview of the ability of company
managers to use assets effectively. To calculate your spending, use the following formula:

Cash and cash equivalents+ Marketable investments+ Trade accounts receivable

+ Inventory- Trade accounts payable = Net working capital

c. FINANCING POLICY
1. Aggressive approach
How aggressive is too dangerous plans of action of the rate applicable to the
operation. It does not consider holding any repositories to cover the default
requirements in the working capital. It means that just about any other part of the
city's permanent operations is funded by long-term funding. Balance and short-term
working capital, including seasonal fluctuation, being on loan later. Enabling this
approach enables us to reduce interest costs and increase business profitability, but
also carries significant risks.
formula
Noncurrent Assets + Portion of Permanent Working Capital= Long-term Financing
Portion of Permanent Working Capital + Temporary Working Capital= Short-term Financing

2. Moderate approach
A balanced approach, also called a shearing strategy, follows a similar process.
According to this approach, non-current assets should be financed by long-term and
current assets at short-term cost. Therefore, under a balanced approach, entities
should use long-term capital to fund assets that do not conform to the permanent
operating system. The need for short-term liquidity should be addressed with short-
term financing.

Formula:
 Long-term financing = Noncurrent Assets + Permanent Working Capital
Short-term financing = Temporary Working Capital

3. Conservative approach
The savings method has the lowest risk and the lowest profit among other cash flow
operating strategies. Businesses use long-term capital to finance not only assets that
are out of line with long-term performance but also a portion of short-term capital.
This method is also subject to low liquidity risk due to excessive cost.
Formula:
Long-term financing = Noncurrent Assets + Permanent Working Capital + Part of
Temporary Working Capital
Short-term financing = Part of Temporary Working Capita

Question 2

Ahmed Corporation has a DSO of 17 days. The company averages $3,500 in credit sales each
day. What is the company’s average accounts receivable?

DSO = Avg. Accounts Receivable / Credit sales per day

17 = Avg. Accounts Receivable / $3,500
Avg. Accounts Receivable = 17 x $3,500 = $59,500.

Question 4

Solution:
a) Cash conversion cycle = Inventory conversion period + Collection period – Payment
period
= 75 + 38 – 30
= 83 days
b) Average sales per day = Annual sales/Number of days in a year
= $3,421,875/365
= $9,375
Investment in receivables= Average sales per day x Collection period
= $9,375 x 38
= $356,250
c) Inventory turnover ratio = Number of days in a year/ Cost of goods sold
= 365/75
= 4.87