Question

How does net working capital affect the decision making?

Please explain briefly.

Answer 1

networking capital affect the decision making in following ways:-

1) Investment is working capital incurs cost and thus how much working capital is required to be assessed before making the investment decisions

2) Working capital estimates are to be made to ascertain the need for borrowing in the future period

3) Cash conversion cycle is to ascertained to manage to understand the flow of the cash

4) Level of inventory to maintained is a crucial factor to be decided for the firms

5) Credit policy is based on the assessment of the working capital