Interpretation of Accounts Using Simple Accounting Ratios Equity: Working Capital - SS2 Accounting Past Questions and Answers - page 1
What is working capital?
The amount of money a business has available to fund its day-to-day operations.
The amount of money a business has invested in long-term assets.
The amount of money a business owes to its suppliers.
The amount of money a business has in its bank account.
What are current assets?
Assets that can be quickly converted into cash.
Assets that are used for long-term investments.
Assets that a business has sold in the past year.
Assets that a business plans to sell in the future.
Why is managing working capital important for businesses?
It helps businesses cover their short-term expenses.
It ensures businesses have enough money to invest in long-term assets.
It helps businesses reduce their taxes.
It helps businesses increase their profits.
What can happen if a business does not have enough working capital?
It may struggle to pay its bills and could face bankruptcy.
It may have too much cash on hand.
It may have to pay more taxes than necessary.
It may have difficulty finding customers.
How is working capital calculated?
Working capital is calculated by subtracting a company's current liabilities from its current assets.
Why is too much working capital not always a good thing for a business?
Too much working capital can tie up resources that could be used for growth and investment. It may also indicate that the business is not using its resources efficiently, which could lead to missed opportunities for growth and profitability.