Theory question 103
Business CalculationsCommerce 2 (answer five questions)
(a) Explain the meaning of working capital and state its importance
(b) Outline any seven factors which might affect the rate of turnover.
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(a) Working capital is current assets minus current liabilities: the funds available to run the business day by day.
Importance: pays for stock, wages and other running costs; shows whether the business can pay its short-term debts (liquidity); allows the firm to take advantage of cash discounts and bulk buying; prevents the business from stopping for lack of funds.
(b) Any seven: price of the goods; nature of the goods (perishable/fast-moving or durable); amount of capital to buy stock; advertising and sales promotion; credit facilities offered; location of the business; competition; season/fashion and changes in taste; efficiency and attitude of sales staff; income of customers; the range of goods stocked; transport and communication facilities.
Give the formula for working capital, then list seven distinct factors briefly.