Working Capital

There are several different interpretations but the core fundamental is all current assets less current liabilities.

Working Capital Turnover

The activity ratios measure performance of a current asset on the balance sheet against a corresponding area of the income statement.  The working capital turnover is the most encompassing of all the activity ratios; in effect, it is the most general of the activity ratios.   This particular ratio measures the ability of management to efficiently …

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Cash Ratio

One of the liquidity ratios used in business is the cash ratio.  It is a much more effective tool for small business than the traditional current or quick ratio.  Although the cash ratio is more difficult to manipulate in small business, most entrepreneurs miscalculate the result.  This resource paper is designed to explain to the business entrepreneur …

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Working Capital Management – Production and Sales Flow

There is no single management style to address the multitude of working capital cycles existing in the various business sectors and the underlying industries.   Taking raw resources and turning them into consumer goods has different time frames depending on the item produced.   In addition, the sales period varies from product to product.   …

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Bookkeeping – Controlling Cash (Lesson 48)

In small business, cash is almost always the number one issue.  There is simply never enough.  This is primarily attributable to growth.  Growth requires both physical assets to produce more and expansion of accounts receivable.  Technically the expansion of accounts receivable is the economic equivalent of lending cash.  So if accounts receivable grows $50,000 in one...

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Bookkeeping – Cash Disbursements (Lesson 45)

Cash disbursements is the process of remitting payment to vendors, suppliers and third party contractual obligations.   Better managed offices pay bills in regular cycles including weekly and monthly obligations.   Preparation, reconciliation and actual check writing is commonly referred to as cash disbursements.   For the bookkeeper, this is a function of the day-to-day...

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Bookkeeping – Accounts Payable Management (Lesson 43)

With small business the biggest hearache for the bookkeeper is addressing the daily phone calls and letters (bills, statements and notices) related to purchases.   Vendors regulary communicate with the accounts payalbe manager wanting to know payment cycles and status of their respective account.   Think of it in reverse of how with receivables communication...

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Working Capital Cycle

The college textbook definition of working capital is current assets minus payables and accrued expenses.  The term explains the dollar value of flexibility a business operation has to take advantage of immediate opportunities or endure sudden or long-term setbacks.  Since it is a balance sheet based formula the value is a function of a moment …

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Gathering Data from Sales

In business the best source of new business is the existing customer.  Discovering the customer’s habits and characteristics allows the sales department to expand into new geographical territories with similar customer characteristics and/or modify the existing product lines.  The key to success is gathering the proper information at the point of sale. The best example …

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Replacement Reserves- Understanding the Fundamentals

Replacement Reserves

Long term and short term housing rental businesses use a financial operations tool to maintain, repair and upgrade the physical facilities.  This tool is known as replacement reserves in the real estate industry.  In almost all cases it is a contractual agreement requirement between the mortgage lender and the borrower.

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