Definition of 'Working Capital' A measure of both a company's efficiency and its short-term financial health. The working capital ratio is calculated as: Working Capital This ratio indicates whether a company has enough short term assets to cover its short term debt. Anything below 1 indicates negative W/C (working capital). While anything over 2 means that the company is not investing excess assets. Most believe that a ratio between 1.2 and 2.0 is sufficient. Also known as "net working capital"
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corporate income and balance sheet values to measure the financial health of a company. Z score bankruptcy model: Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + .999X5 Explanation X1: The Working Capital/Total Assets (WC/TA) ratio is a measure of the net liquid assets of the firm relative to the total capitalization. Working capital is defined as the difference between current assets and current liabilities. Ordinarily, a firm experiencing consistent operating losses will have shrinking current assets in relation
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Dell’s Working Capital In 1996, Dell’s net working capital, which is total current assets minus total current liabilities, was in a positive position with $1,018 million. For the past three years from 1994 to 1996, net working capital has been increasing significantly each year. Looking at the information on Table 1, it is very simple to detect this increase. The trend starts at $510 million in 1994 to $718 million in 1995 to $1,018 million in 1996 of net working capital. That makes a 40.78% increase
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analyze three working capital policies: aggressive, conservative, and moderate. A decision must be made to determine which policy will be the most beneficial for the future of Office Mates. Each policy has its own unique pros and cons, and changes that come with estimating different economic outlooks. * Aggressive policy * Minimizing the amount of cash and inventories * Use only short-term debt * Would result in the smallest investment in net working capital * Minimize
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nl/Services/BusinessPlanning/tabid/95/Default.aspx Basis of comparison: The use of ratios as a tool of financial analysis, involves their comparison , for a single ratio like absolute figures fails to reveal their true position. For example, if in case of a firm, the return on capital employed is 15% in a particular year, what does that indicate? Only if the figure is related to the fact that in the preceding year the relevant return was 12% or 18% , it may be inferred whether or not the profit of the firm has declined or improved
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To meet expanding demand, QuickBuild Inc. is looking to purchase a new packaging machine for its Waterloo plant. (CCA class 8, with a rate of 20%). Quickbuild has a corporate tax rate of 34% and a cost of capital of 11%. There are 2 machines that can be purchased. Regardless of what machine purchased, revenues associated with this project are expected to be $25,000 a year. Machine 1 The industry standard machine costs $8500 and is expected to last 6 years. Allowable installation costs on this
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Casa de Diseno Industry Average Average Age of Inventory 110 Average Age of Inventory 83 Average Collection Period 75 Average Collection Period 75 Average Payment Period 30 Average Payment Period 39 a Operating Cycle 185 Cash Conversion Cycle 155 Resouce Investment Needed $11,253,425 b Operating Cycle 158 Cash Conversion Cycle 119 Resouce Investment Needed $8,639,726 c Operatioinal Inefficiency $2,613,699 x 15% $392,055 d
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Shen Jiang Finance 6210 Individual Assignment 1---Rapid Repair Auto Parts Given current financial reports, Rapid Repair has two main issues: over-leverage and cash conversion problems. Looking at the firm’s current ratios and quick ratios (Table 3), both decreased from 2008 to 2012, which means Although current ratio in 2012 is higher than the industrial average due to inventory level, the quick ratio in 2012 is significantly lower than the industry because inventory as a current asset takes
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Dell’s Working Capital In 1996, Dell’s net working capital, which is total current assets minus total current liabilities, was in a positive position with $1,018 million. For the past three years from 1994 to 1996, net working capital has been increasing significantly each year. Looking at the information on Table 1, it is very simple to detect this increase. The trend starts at $510 million in 1994 to $718 million in 1995 to $1,018 million in 1996 of net working capital. That makes a 40.78% increase
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Formula Sheet: Net Cash Flow = Net Income + Depreciation and Amortization Net Working Capital => you have to remember! NOPAT= EBIT (1-t) OCF = EBIT (1-t) + Depreciation FCF = EBIT(1-t) + Depreciation - Capital expenditures - Changes in Net Working Capital CF to investors (CF from assets=FCF) = -CF from financing activities + interest Cash flow to creditors = interest + retirement of debt – new debt issues = = interest – Δ LT debt – Δ ST debt – ΔCurrent maturities of LTD Cash flow to shareholders
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