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sir in the lectures when the illustration 1 was done ,
the inventory were increased as it doubled
the receivables were increased as it doubled
and sir increased the payables as it doubled as well
but why did not the cash get doubled ?
i wonder why
That is the whole problem with over-trading.
If they had planned properly and raised more long term finance then they would be able to have double the cash. Because they have not raised more long-term finance they are forced into cash problems because the finance for the extra receivables and inventories has to come from somewhere.
Thank you sir
The difference between
Current assets and current liabilities is working capital
Can we also calculate the working capital by simply looking at the differences between
The equity and non current assets ?
No we cannot.
The working capital is the difference between the total long-term finance and the non-current assets, and the total long-term finance is the equity plus the debt finance.
Sir working capital can be found in 2 ways
Way 1 is current assets less current liabilities
Way 2 is equity + long term debt ?
Long term finance which is equity + debt is also known as capital employed right sir
Way 2 is not correct. It is equity + long term debt (which is the capital employed) less the non-current assets.