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April 11, 2018 at 3:10 am
Sir what is happening to the cash of 50 in that example? why wont it double as well?
John Moffat says
April 11, 2018 at 7:38 am
How can it double unless they raise more finance – it would have to come from somewhere!! That is the whole point about over-trading, unless they raise more long-term finance to cover the need for extra working capital, then they will be forced into using short-term finance i.e. going overdrawn.
March 13, 2018 at 1:05 am
What would you consider to be a high working capital?
March 13, 2018 at 8:08 am
You cannot look at the level of working capital on its own and say that it is too high or too low – it depends on the type of business and the size of the company. You can only comment by comparing it with similar companies, or with previous years.
March 13, 2018 at 11:53 pm
Noted with many thanks.
March 14, 2018 at 7:10 am
You are welcome 🙂
December 28, 2017 at 8:15 pm
why would overcapitalization be a problem?
December 29, 2017 at 7:10 am
Because working capital would be higher than needed. Working capital does not earn money for the business, but because of having raised more long-term capital to finance it they will be paying more interest than needed.
December 30, 2017 at 10:57 am
I understand now. Thank you for your reply.
July 7, 2017 at 7:39 am
There would be no point in doubling the working capital if they were not doubling the non-current assets – it would be more sensible to do it in proportion.
However it israthler academic in that you will not be asked calculations on this – it is more understanding the potential problem of over-trading.
July 7, 2017 at 12:12 pm
Thanks for the reply (Y) Helps alot!
July 7, 2017 at 12:49 pm
July 6, 2017 at 8:01 pm
Sir, If the Company not been able to generate an additional investment of $700, instead it can only generate an additional investment of $500. In such case is it better to add $300 to Non current assets, so NCA will be $800(500+300) and long term capital will be $1200(700+500) and that leaves the company with a working capital of $400. Is it better that way, rather than investing the entire $500 into NCA
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