--%>

Define Working capital requirement

Working capital requirement: Is a financial term known as WCR, which is used to judge the operational liquidity of the business and it is a part of operational capital. A firm in spite of having a good profitability and assets may not have a good liquidity position to meet its day-to-day needs. The estimation of working capital requirement ensures that a firm is always able to continue its operations without any hindrances. A positive working capital ensures that the firm has sufficient funds to meet both the short-term debt and continue its operations. On the other hand a negative working capital means that the firm is unable to meet its short-term obligations and will therefore be not able to carry its operations regularly. The management of working capital involves managing inventories, accounts receivable, cash, and account payables. The components of working capital requirement are as following:

Working Capital Requirement = Operating Assets – Operating Liabilities

WCR = (Accounts receivable + Inventories + Prepaid expenses)-(Accounts payable + Accrued expenses)

   Related Questions in Corporate Finance

  • Q : Describe nominal gross domestic product

    Nominal gross domestic product: If GDP of a particular year is estimated on the base of price of similar year, it is termed as nominal GDP.

  • Q : Which model was great breakthrough for

    Which one model was great breakthrough for side of finance theory?

  • Q : Explain essential hypotheses for

    Which are the essential hypotheses so that valuations of the Economic Value Added (EVA) give similar results to discounting cash flows?

  • Q : Benefits of working capital requirement

    Benefits of working capital requirement estimation: • Helps to judge the efficiency of utilization of working capital in generation of sales • Cost of capital aspect

  • Q : What is the Free Cash Flow Is the Free

    Is the Free Cash Flow (FCF) the sum of the debt cash flow and the equity cash flow?

  • Q : How WACC should be computed to begin a

    I cannot seem to begin a valuation. In order to compute E + D = VA (FCF; WACC) I require the WACC and to compute the WACC I need D and E. Where must I start?

  • Q : Financial problem regarding acquistion

    My Company paid an extremely higher price for the acquisition of other company; the price was recommended through the valuation of an investment bank. Now we have financial problems. So is there any way to make this bank legally responsible for such situation?

  • Q : International financial what can we

    what can we expanded opportinity set of international finance?

  • Q : Difference between intrinsic value and

    XYZ explained the difference between intrinsic value and book value in terms of the money spent on a college education. Please provide another example using a different simile.

  • Q : Analysis on Stock Prices Using the last

    Using the last 3 years of closing stock prices on the first trading day of each month from January,  2010 through December 2012 for Apple (APPL) and the S&P 500 (market) for the same date range 1)    &n