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Just a quick question regarding to answer at the back on Part C in regards to working capital policy.
The answer ” long term debt only accounts for 2.75% (40/1450) of non cash current asset” I can see where the 1450 came from (Total current asset less cash), but the 40? There is a 40 in the Statement of Financial Position, but thats Current assets (1570) less Liabilities within one year (1530), which gives you a working capital. And the statement also gives Liabilities, due more than one year, of debentures at 2,400, wouldn’t this be the long term debt the answer was referring to?
Agressive policy is when currents asset and most non current asset are financed by short term debt? so for the question, where short term liabilities at £1530 and current asset (less cash) at £1450 points it away from an agressive approach?
Thank you for any help, much appreciated
The point is that in looking at the total working capital, you should ignore the overdraft (because the overdraft is helping to finance the overdraft).
So….the working capital is 1240 of which 1200 is coming from an overdraft and only 40 is coming from long-term finance.
All the rest of the long-term finance (the equity plus all of the long-term debt except for the 40 that is financing working capital) is investing in non-current assets.
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