Question

Identify each of the working capital management terms in the table below by placing an “X” in the box opposite its description.

	Cash Budget	Current Ratio	Net Working Capital	Spontaneous Liabilities	Working Capital
Forecasts a firm’s cash inflows and outflows
Firm’s current assets
Difference between a firm’s current assets and current liabilities
The firm’s current assets divided by its current liabilities
Current liabilities that grow as the firm grows

Answer 1

A cash Budget is a Budget of  estimation of Firm's cash flow over a specified period of time.

a) Cash Budget = Forecasts a firms cash inflows and outlfows

Working Capital is the Capital required for day-to-day operation of a business. Working Capital refers to Firm's Current Assets.

b) Working Capital = Firm's Current Assets

Net Working capital is the difference between Firm's current assets and current liabilities.

c) Net Working Capital = Difference between a firm's current assets and current liabilities.

Current Ratio is a liquidity ratio that measures a company's ability to pay its short-term obligations due within one year. It is calculated as :

Current Ratio = Current Assets / Current Liabilities

d) Current Ratio = The firms current assets divided by its current liabilities

Spontaneous Liabilities are the liabilities of a company which are due within one year, that are accumulated as a result of company's daily operations.

e) Spontaneous Liabilties = Current Liabilities that grows as the firm grows