Working Capital Management
Relevant costing and decision making
Course : APC 309: Strategic Management Accounting
Table of Contents 1. Introduction 3 2. Part A: Working capital management of XYZ 3 2.1. Improving the elements of working capital 5 i. Inventories 5 ii. Trade receivables 6 iii. Trade Payables 7 iv. Cash and cash equivalent 7 3. Part B: Strategic Management Accounting for Decision making 8 3.1. Shutting down or keeping open a part of a business 9 3.2. Pricing a product or service 10 3.3. Product mix and limiting factor analysis 11 3.4. Make or buy decision 11 4. Conclusion 12 List of References …show more content…
Working capital is defined as the capital available for conducting day to day operations of an organisation; normally the excess of current assets over current liabilities (CIMA, 2013). According to IAS current assets are defined as the assets that are expected to be realised in the entity's normal operating cycle, held primarily for the purpose of trading, expected to be realised within 12 months after the reporting period and cash and cash equivalents (unless restricted). (IAS 01, cited in, iasplus.com) and the current liabilities are defined by IAS as the liabilities those are expected to be settled within the entity's normal operating cycle, held for purpose of trading, due to be settled within 12 months and for which the entity does not have an unconditional right to defer settlement beyond 12 months (settlement by the issue of equity instruments does not impact classification) (IAS 01, cited in, iasplus.com). The components of current assets and liabilities should be managed well to improve working capital.
The objective of working capital management is to keep a proper balance between the profitability and the liquidity of an organisation. Profitability is the measure of profit in the light of the amount