1. Explain the importance of working capital in terms of liquidity and short-term solvency position of a firm. 2. What do you understand from working capital? What are its different forms? 3. Net working capital is much useful in taking decisions', do you agree with the statement? Comment and justify. 4. "Working capital is two-edged sword, its excessive and deficit availability are equally bad". Comment and justify your answer with appropriate examples. 5. What are the different factors affecting the requirements of working capital?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Figure 9.7: Approaches to Working Capital Policy
←
Financial-Manage...
Working Capital Management || 195
Under a conservative policy, the level of working capital tends to more, as shown
at point C in figure 9.7, at a given level of output. On the other hand, the firms follow
aggressive policy has lesser amount of current assets, as shown at point A in figure 9.7,
in comparison of moderate and conservative policy. A moderate approach may be said
as balanced approach.
The third step of working capital management, involves control of each current
assets, e.g., cash management, inventory management, bills receivable, debtors'
management. We have already discussed some ratios in respect of inventory and
debtors, e.g., inventory turnover ratio, debtor's turnover ratio and collection period etc.
Inventory, and cash management further includes various topics e.g., economic order
quantity, store ledger, cash budget etc. These are not discussed here due to limited
syllabi requirement.
Review Questions
1. Explain the importance of working capital in terms of liquidity and short-term
solvency position of a firm.
2. What do you understand from working capital? What are its different forms?
3. Net working capital is much useful in taking decisions', do you agree with the
statement? Comment and justify.
4. "Working capital is two-edged sword, its excessive and deficit availability are
equally bad". Comment and justify your answer with appropriate examples.
5. What are the different factors affecting the requirements of working capital?
Enumerate.
6. Illustrate the importance of working capital for a new manufacturing firm.
7. How are net working capital, liquidity, technical insolvency and risk related?
8. Briefly explain the essentials of sound working capital management.
9. Describe working capital management, and explain different approaches to
finance working capital requirements.
10. List down the type of industries those, according to your understanding, follow
working capital approaches: (i) conservative, (ii) aggressive, (iii) zero working
capital approach.
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Transcribed Image Text:Output Figure 9.7: Approaches to Working Capital Policy ← Financial-Manage... Working Capital Management || 195 Under a conservative policy, the level of working capital tends to more, as shown at point C in figure 9.7, at a given level of output. On the other hand, the firms follow aggressive policy has lesser amount of current assets, as shown at point A in figure 9.7, in comparison of moderate and conservative policy. A moderate approach may be said as balanced approach. The third step of working capital management, involves control of each current assets, e.g., cash management, inventory management, bills receivable, debtors' management. We have already discussed some ratios in respect of inventory and debtors, e.g., inventory turnover ratio, debtor's turnover ratio and collection period etc. Inventory, and cash management further includes various topics e.g., economic order quantity, store ledger, cash budget etc. These are not discussed here due to limited syllabi requirement. Review Questions 1. Explain the importance of working capital in terms of liquidity and short-term solvency position of a firm. 2. What do you understand from working capital? What are its different forms? 3. Net working capital is much useful in taking decisions', do you agree with the statement? Comment and justify. 4. "Working capital is two-edged sword, its excessive and deficit availability are equally bad". Comment and justify your answer with appropriate examples. 5. What are the different factors affecting the requirements of working capital? Enumerate. 6. Illustrate the importance of working capital for a new manufacturing firm. 7. How are net working capital, liquidity, technical insolvency and risk related? 8. Briefly explain the essentials of sound working capital management. 9. Describe working capital management, and explain different approaches to finance working capital requirements. 10. List down the type of industries those, according to your understanding, follow working capital approaches: (i) conservative, (ii) aggressive, (iii) zero working capital approach. 000 6:56 _||| 72 : Scanned with Cam Scanned with Cams
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