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Working Capital

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International Baccalaureate Business and Management Mind Map on Working Capital, created by rosette.sok21 on 04/09/2014.
rosette.sok21
Mind Map by rosette.sok21, updated more than 1 year ago
rosette.sok21
Created by rosette.sok21 over 8 years ago
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Resource summary

Working Capital
  1. lifeblood of a business
    1. working capital = current assets - current liabilities
    2. How much is needed?
      1. Sufficient needed to prevent a business from becoming illiquid + unable to pay its debt
        1. too high a level of WC = disadvantage
          1. too much capital tied up in stocks, debtors + idle cash = the return that money could earn elsewhere
          2. working capital cycle
            1. the period of time between spending cash on the production process & receiving cash payments from customers
              1. the longer this time period (from buying materials + receiving payment) = the greater the working capital needs
        2. Cash vs. Profit
          1. Profit does not pay the bills - cash does
            1. common for profitable businesses to run short of cash
            2. Cash flow
              1. relates to the timing of payments to workers and suppliers + receipts from customers
                1. the sum of cash payments made to a business (inflows) - the sum of cash payments made by it (outflows)
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