Advertisements
Advertisements
प्रश्न
How does working capital affect both the liquidity as well as profitability of a business?
Advertisements
उत्तर
Working capital is the difference between current assets and current liabilities. It affects both liquidity and profitability of the business.
- The increase in current assets increases the liquidity position of the business but affects the profitability adversely because the return on current assets is quite low.
- Low working capital will affect the liquidity of the business which may disturb the day to day operation.
So the working capital should be maintained at such a level that a proper balance could be maintained between profitability and liquidity.
संबंधित प्रश्न
Match the pairs
|
Group A |
Group B |
|
a. Fixed Capital |
1. Owned Capital |
|
b, Overdraft facility |
2. Bearer document |
|
c. Share certificate |
3. Investment in fixed assets |
|
d. Debentures |
4. Current Account |
|
e. Return on shares |
5. Application Money |
|
|
6. Dividend |
|
7. Investment in current assets |
|
|
8. Borrowed capital |
|
|
9. Savings Account |
|
|
10. Registered Document |
Answer the following question:
The Return on Investment (ROI) of a company ranges between 10 - 12% for the past three years. To finance its future fixed capital needs, it has the following options for borrowing debt:
Option ‘A’: Rate of interest 9%
Option ‘B’: Rate of interest 13%
Which source of debt, ‘Option A’ or ‘Option B’, is better? Give reasons in support of your answer. Also, state the concept being used in taking the decision.
Explain the following as factor affecting the requirements of fixed capital:
Scale of operations
Explain the following as factor affecting the requirements of fixed capital:
Choice of technique
Explain the following as factors affecting the requirements of fixed capital:
Technology upgradation
Explain the following as factors affecting the requirements of fixed capital:
Financing alternatives
Explain the following as factors affecting the requirements of working capital:
Nature of business
Explain the following as factors affecting the requirements of working capital:
Production cycle
Varunica Ltd., a reputed truck manufacturing company, needs rupees twenty crores as additional capital to expand its business. Mr. Alind Jindal, the CEO of the company, wants to raise funds through equity. The Finance Manager, Mr. Nikhil Sachdeva, suggests that the existing shareholders be offered the privilege to subscribe to new issue of shares as per the terms and conditions of the company which was agreed by Mr. Alind Jindal.
Name the method through which the company decided to raise additional capital.
State, with reason, whether the following statement is True or False.
Requirement of working capital does not depend upon any factor.
Write a word or a term or a phrase which can substitute the following statement :
The difference between current assets and current liabilities.
Explain any four factors that affect the capital structure of a company.
Higher working capital usually results in :
Current assets of a business firm should be financed through
______ refers to the decisions regarding where to invest so as to earn the highest possible returns on investment.
______ involve identifying various sources of funds and deciding the best combination for raising the funds.
Net working capital may be defined as the:
A business firm should have extra funds to meet future emergencies. Identify the type of working capital indicated here.
