1) What balance sheet accounts explain the most significant changes in working capital? 2) What can...

1) What balance sheet accounts explain the most significant changes in working capital?

2) What can you infer from the working capital analysis?

3) Explain what you can infer from the common size analysis:

Expert Solution

1) working capital is that capital which is use by company for its day to day business operations. It is calculated by a formula that is current assets - current liabilities. Balance sheet account which explain the significant change in working capital are 1. Debtors 2. Short term advances 3. Inventory 4. Creditors 5. Short term loans. These are the accounts which explain the significant changes in working capital.

2) working capital is needed to fullfill the day to day operation of the enterprises and for earning regular income. An analysis of working capital would be helpful to determine the operational efficiency of an enterprise. If an organisation have good working capital management it will help the organisation to work efficiently and effectively and help to cope up with any kind of emergency.

3) common size analysis is usually used by small business owners for comparing their income with last year's to know whether they are earning profits or not. Common analysis is used for evaluating its financial position by a given formula and that is:- analysis amount/ base amount of total assets × 100%. For example if an organisation's current year common analysis is 4.8% and last year's common analysis is 5.7%, it means that the organisation's cash balance is reduced by 0 .9 %. Thus, common size analysis help organisation in comparing its current financial position with respect to last year and help the organisation to know its actual financial position.

ekkarill92 answered 2 years ago

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