Question

1. Define each of the following terms:

   • Working capital –

   • Net working capital –

   • Net operating working capital –

2. Explain the following operating current asset investment policies.

   • Relaxed policy –

   • Restricted policy –

   • Moderate policy –

Answer 1

A. working capital will mean the gross working capital which will only include the current asset which is available with the company.

B.Net Working capital is the difference between the current asset and the current liability of a company and it will be providing the capital which is used for the short term.

C .Net operating working capital is only working capital which is just related to the operating current asset and it will not be including any kind of non operating assets or current liabilities

2. A. Relaxed policy of working capital is related to adoption of fair conservative policy which will not be taking highest. It has highest number of current asset

B. Restricted policy of operating current asset will focus upon keeping lower amount of current assets. It is an aggressive policy in regards to working capital

C. Moderate policy is a policy which will be reflecting that there is a fair use of working capital and current asset and it is a hedging policy.