Section 1
Test your understanding
Define working capital (section 18.1).
Define current assets and give three examples (section 18.2).
Define current liabilities and give three examples (section 18.3).
Explain how the stockholding period is calculated (section 18.2.1).
Explain how the debtors' collection period is calculated (section 18.2.2).
Explain how the creditors' payment period is calculated (section 18.3.2).
Explain what is meant by the accrual of liabilities (section 18.3.3).
Describe the working capital cycle (section 18.4.1).
Explain how the current ratio is calculated (section 18.4.2).
Explain how the liquid ratio is calculated (section 18.4.2).
Explain how the working capital cycle is calculated (section 18.4.3).
Explain the meaning of over trading (section 18.4.4).
What are the costs of holding inventory (section 18.5.1)?
What are the costs of ordering inventory (section 18.5.1)?
How is the economic order quantity calculated (section 18.5.2)?
What is the just-in-time approach to purchasing inventory (section 18.5.3)?
Describe the main contents of a business plan for presenting to a bank providing finance for a small business (section 18.6).
What have researchers found about the frequency of review of working capital in small businesses (section 18.7.1)?
What have researchers found about the length of the working capital cycle in practice (section 18.7.2)?
What have researchers found about the idea that different types of business have different types of working capital (section 18.7.3)?
What are bankers looking for when they evaluate working capital (section 18.7.4)?
What kinds of organisation are likely to use JIT production (section 18.7.5)?