Definitions [8]
Explain the following term with proper example:
Cash flow projection
Cash flow projection shows how cash is expected to flow in and out of your business.
Explain the following term with proper example:
Cash outflow
It is defined as the movement of money out of a business.
Example: Furniture and Fixtures, Interior Decoration, Tools, Computers, Raw Material.
Explain the following term with proper example:
Cash flow
Cash flow refers to the movement of money in and out of a business during a specific period of time.
Example: Loan Received, Sales Receipts, Sale of Assets.
Explain the following term with proper example:
Cash inflow
All receipts of money in the business is known as cash inflow like rent received and loan received.
Explain the following term with proper example:
Re-order point
It is a level at which a new order must be placed so that the inventory is renewed before the stock reaches zero level.
It is estimated by using the formula Reorder Point = Usage Rate x Lead Time.
Explain the following term with proper example:
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.
Explain the following term with proper example:
SKU
Stock Keeping Unit (SKU) code
(a) All items in the inventory is to be identified with a unique code which signifies certain aspects of the item.
(b) It can be colour, size, weight or any other characteristics that is of importance in its use.
(c) The SKU code can be a combination of alpha and numeric.
(d) SKU is the very basic unit for data collection and further manipulation for deriving meaningful statistics and decision making.
(e) Bar Codes and RFID (Radio Frequency Identification tags are used in tracking etc. using SKU.
Explain the following term with proper example:
Pareto’s Law formed the basis for a technique. Name it.
The principle is named for Vilfredo Pareto, an Italian economist who studied land ownership in Italy in the early 1900’s and found that roughly 20 per cent of the population held title to about
80 per cent of the land. Pareto’s law has applications throughout science as well as business, including inventory control, where it forms the basis for a technique called ABC analysis.
Formulae [1]
NWC = CA - CL
Where:
- NWC = Net Working Capital
- CA = Current Assets
- CL = Current Liabilities
Theorems and Laws [1]
Explain the following term with proper example:
Pareto’s Law formed the basis for a technique. Name it.
The principle is named for Vilfredo Pareto, an Italian economist who studied land ownership in Italy in the early 1900’s and found that roughly 20 per cent of the population held title to about
80 per cent of the land. Pareto’s law has applications throughout science as well as business, including inventory control, where it forms the basis for a technique called ABC analysis.
Key Points
- Working capital is the investment in current assets needed for smooth day-to-day operations.
- Current assets are more liquid but provide lower returns than fixed assets.
- Current liabilities are short-term obligations payable within one year.
- Net Working Capital = Current Assets − Current Liabilities.
- A business should maintain a balance between liquidity and profitability.
- Working capital requirements depend on factors such as nature of business, scale of operations, business cycle, seasonality, production cycle, credit policy, operating efficiency, raw material availability, growth prospects, competition and inflation.
