Theory question 109
Business CalculationsCommerce 2 (essay)
(a) State five factors that can affect the rate of turnover of a company.
(b) What is working capital?
(c) Explain four importance of working capital.
Show the model answer
(a) Any five: price of goods; nature of goods (perishable/durable); advertising and sales promotion; location; competition; consumers' income; credit facilities; quality; season/fashion; efficiency of staff.
(b) Working capital is current assets minus current liabilities – the funds available for day-to-day running.
(c) Any four, explained: pays daily expenses (wages, rent); buys stock; enables the firm to pay debts as they fall due (solvency); allows credit to customers and discounts for prompt payment; helps in emergencies; shows financial strength to creditors.
State the formula for working capital in (b).