Fixed Investment Ratio MethodEvery business needs to maintain an optimum level of working capital to run the business smoothly. While excessive working capital harms the business inadequate amount of working capital is also a matter of concern. Therefore, businesses must estimate the working capital needs for the shorter and longer-term ... Read More

What is Sales Ratio Method?The sales ratio method is one of the easiest methods of calculating working capital. This method is based on the assumption that “history repeats itself.”Therefore, to determine the working capital in this method, one has to have the past figures of sales in hand.In the sales ... Read More

Current Assets Holding Period MethodThe current assets holding period method is used to estimate the working capital needs of an organization based on the current assets the company holds. To estimate the working capital needs, the average holding period of the current assets is related to costs based on the ... Read More

Trade-off Theory of Capital StructureIn the risk-return trade-off theory of capital structure, there is an optimum level of current assets and/or working capital that a company must maintain to gain the optimum level of profitability. There is another way to look into the risk-return trade-off theory of business companies. It ... Read More

Significance of Current Assets over Fixed Assets RatioCompanies need certain levels of current and fixed assets to support a certain level of output. However, in order to support the same level of output, the organization needs to maintain a given level of current assets. The current assets of an organization ... Read More

Every business requires a smooth working capital management policy in order to remain in good health and compete with its competitors. The policies a business adopts affect its working capital management norms.For example, the credit policy of the firm and price level changes affect the firm’s financial norms greatly. Here’s ... Read More

What is Net Working Capital Management?The concept of net working capital management should be applied to organizations individually as there is no precise measure to which the net concept of working capital management should be applied to a firm. It depends on the financial status and needs of an organization ... Read More

Role of Credit PolicyIt is known to all that having a good amount of working capital is necessary for the smooth functioning of businesses. For example, the credit policy of a company plays a pivotal factor in managing the working capital of a company.Companies often need to sell their products ... Read More

What is Operational Efficiency?Operating efficiency is the efficiency that is obtained due to efficient utilization of fixed and current assets and other resources of the firms. It is an indicator of better management and good health of a business firm. Operating efficiency is not easy to obtain because all of ... Read More

Although there are no hard and fast rules for determining the working capital for a company, there are many factors that affect it. It is the duty of management to judge the right amount of working capital for running the organization and keep the adequate amount of working capital available ... Read More