Jgt2 Task 3 Essay

337 Words2 Pages
A3. Working capital is available capital for running day to day activities of the company. It is extra of permanent capital in additional to long term liabilities over a company fixed assets. If the company is making profit then company’s working capital will be positive which proves that company is able to pay off its short-term liabilities. It also shows that company is in stable condition and making progress. We can also measure working capital by going through our inventory. If the inventory of the company is moving on good phase then it shows that company’s working capital is in good shape. A working capital should be managed efficiently. In a case where the working capital is managed poorly, it can decrease the company’s liquidity, profitability, and ability to invest in prolific assets, such as machinery and the plant. Every company needs to budget a right amount of working capital that can meet future anticipated needs. Working capital can be managed properly by quick turnover of the inventory. Inventory should be in manner of first-in-first-out. And there should be always some inventory in the stock. Also, company should not use all their cash to pay debt, they should always make cash available to use for other purpose. Working capital shortages often cause business failure. Looking at the balance statement, buying assets is the best option available for Competition Bike Inc. Company since it will preserve more working capital to the company for next five years. If company lease assets, Company’s cash flow will be steady for next five years whereas company cash flow increase gradually in 5 years, if company purchase assets. Company will invest its capital to purchase assets for the company, when company will have assets of its own then working capital of the company will be strong since the liability of the company will be less compared to paying for the

More about Jgt2 Task 3 Essay

Open Document