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Hi sir,
I am a little confused about the working capital when a company makes an investment. My question is if all the investments made by the company belong to the working capital. For instance, a company get a bank loan to finance its new project. Does this bank loan a working capital for the project?And also, if a company gets a bank loan to buy machinery for its new project within a time period. Is this amount of money cash-in or cash-out to the company?
Working capital is the difference between current assets and current liabilities. WC is needed to run day to day business, such as payment to suppliers salaries, etc.
working capital has a cost. for example if our customers are not paying on time then we will not have money to pay our suppliers. so in order for us to get the money to run our business we need to find ways to finance our wc such as factoring, invoice discounting or even over draft.
also be careful not to get working capital and capital expenditure mixed up!!! all working capital is….. is what was explained by ndono.. and has 2 components….. current assets and current liabilities
xuruofanangela: If you are asking about the effect of working capital in investment appraisal, then you need to watch the free lecture that explains and deals with this.
(Our lectures are a complete course for F9 and cover everything you need to be able to pass the exam well).
Also, if you are wanting me to answer (you started with ‘Hi sir’) then you must ask in the F9 Ask the Tutor Forum – this forum is for students to help each other.
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