Question

Working Capital                                                                                          

1. Briefly describe the Working Capital & Liquidity Management and its Significance for the survival of the Companies.                                                                                   

2. State the Factors that defines the nature and level of Working Capital in an Organization                                                                            

3. State the Procedures for efficient management of Inventory & receivable Management.                                                                                       

4. Briefly describe the Cash Operating Cycle and state the formula.

Calculate the Working Cycle ($ & days) of Qatar plc from the following data and draw the Working Capital Cycle

                                  31^st Dec2018                    31^st Dec 2019

Inventory                         6,000                                     7,000

Receivables                      3,500                                     5,000

Payables                        2,800                                       2,800

Briefly Comment (improve or worse) on the Working Capital calculated above. Provide the reason of the Statement that “Lower the Working Capital the better it is”

Answer 1

Ans 1

Working Capital : In an ordinary sense, working capital denotes the amount of funds needed for meeting day-to-day operations of a concern.This is related to short-term assets and short-term sources of financing. Hence it deals with both, assets and liabilities in the sense of managing working capital it is the excess of current assets over current liabilities.

Liquidity Management : Means entity is able to pay there liability when it was due with out effecting the business of the entity.

Significance of liquidity management:

The importance of liquidity management cannot be understated until understand Liquidity risk. Liquidity risk, which treasurers and finance department managers constantly attempt to downplay, can lead to a variety of problems and pull a company into ill health.One Situation may arise

the firm find itself unable to meet short term cash obligations, or cash equivalent obligations as set out in contractual terms with depositors and borrowers, it may find itself in a position in which it must sell illiquid assets quickly – which could lead to a situation in which it may be forced to accept less than those assets’ fair value.

consequences entity may go under liquidation.

Ans 2.

State the Factors that defines the nature and level of Working Capital in an Organization

Current Liability

1.Bank overdraft

2. creditors

3.outstanding expenses/ bills payable

4.Bills payable

5.Short term loan

Current Assets

1.Inventory

2. Advances to suppliers

3.Trade Receivable

4.cash and bank balances

5.Accured Income

6. Prepaid Taxes

Ans 3

Procedures for efficient management of Inventory

Research existing periods where inventory was out of demand.
This could be a point where you experience a shortage or excess. Looking at these inventory management failures can be a good place to start. If you figure out where it all went wrong, you will be able to more easily fix it.

2. Study demand and consumer spending trends in the marketplace.

This could be a point where you experience a shortage or excess. Looking at these inventory management failures can be a good place to start. If you figure out where it all went wrong, you will be able to more easily fix it.

2. Study demand and consumer spending trends in the marketplace.

Look back on the last couple years at existing retail statistics to track the various periods where demand peaked or experienced a significant drop. This can serve as the basis for forecasting the upcoming seasons. However, you will also need to track current trends among consumers, including their buying behaviors, needs and wants, and consumer confidence to spend related to the economy.

3. Assess inventory and supply costs.

These costs include numerous expenses scattered throughout the supply chain, including freight, volume discounts, and warehousing. See how these have been impacted by your current inventory system and identify those places where waste removal can lower these costs. You can also talk with those partners in the supply chain to renegotiate any of these costs with new supplier and logistics agreements.

4. Decide what processes can be automated.

With today’s technology, there’s no excuse for any manual processes left in your inventory management system. There are numerous online tools for everyone. From a small business with an online marketplace storefront to a major enterprise with multiple locations. Keeping people out of the inventory processes reduces the likelihood for human error to adversely impact your performance.

5. Evaluate supplier performance.

You can make numerous in-house enhancements only to be sabotaged by your suppliers. Suppliers who have not added the same best practices to maintain a steady supply to meet fluctuating demand. It’s good to provide them with feedback on what they might improve in order to help everyone. If there is no willingness to change, then start interviewing other suppliers that have the performance metrics you need.

6. Categorize your inventory.

Create different layers among your products to address different periods of demand for specific types of merchandise. You can also categorize your inventory by type of customer, profit margin it delivers, and overall cost of having it on hand. Creating this system provides a way to deliver on various types of demand while minimizing the costs. This type of best practice can be achieved through today’s inventory management software solutions.

7. Set category goals.

To accompany your inventory stratification mentioned in the last step, establish goals for each category to measure and track efficiency. You can also track different issues and determine if they are category-specific or are signs of a larger issue. These could be issues that you didn’t identify in the past performance test from the first step.

8. Prioritize changes.

You might find that many areas need improvement. However, you need to continue meeting your current demand. This is the point where you will have to decide which things can be immediately fixed, what will take a much larger overhaul, and what might need to be handled in the near future during a quiet demand period.

Look back on the last couple years at existing retail statistics to track the various periods where demand peaked or experienced a significant drop. This can serve as the basis for forecasting the upcoming seasons. However, you will also need to track current trends among consumers, including their buying behaviors, needs and wants, and consumer confidence to spend related to the economy.

3. Assess inventory and supply costs.
These costs include numerous expenses scattered throughout the supply chain, including freight, volume discounts, and warehousing. See how these have been impacted by your current inventory system and identify those places where waste removal can lower these costs. You can also talk with those partners in the supply chain to renegotiate any of these costs with new supplier and logistics agreements.

4. Decide what processes can be automated.
With today’s technology, there’s no excuse for any manual processes left in your inventory management system. There are numerous online tools for everyone. From a small business with an online marketplace storefront to a major enterprise with multiple locations. Keeping people out of the inventory processes reduces the likelihood for human error to adversely impact your performance.

5. Evaluate supplier performance.
You can make numerous in-house enhancements only to be sabotaged by your suppliers. Suppliers who have not added the same best practices to maintain a steady supply to meet fluctuating demand. It’s good to provide them with feedback on what they might improve in order to help everyone. If there is no willingness to change, then start interviewing other suppliers that have the performance metrics you need.

6. Categorize your inventory.
Create different layers among your products to address different periods of demand for specific types of merchandise. You can also categorize your inventory by type of customer, profit margin it delivers, and overall cost of having it on hand. Creating this system provides a way to deliver on various types of demand while minimizing the costs. This type of best practice can be achieved through today’s inventory management software solutions.

7. Set category goals.
To accompany your inventory stratification mentioned in the last step, establish goals for each category to measure and track efficiency. You can also track different issues and determine if they are category-specific or are signs of a larger issue. These could be issues that you didn’t identify in the past performance test from the first step.

8. Prioritize changes.
You might find that many areas need improvement. However, you need to continue meeting your current demand. This is the point where you will have to decide which things can be immediately fixed, what will take a much larger overhaul, and what might need to be handled in the near future during a quiet demand period.

Ans4. As per the given data, i am not able to generate cycle of working capital because details of sales was not given