Table of Contents
1.1. Impact of working capital on cash flow
1.2. Effect of badly managed working capital on MedEx Products Ltd.
1.3. Improvement areas for MedEx Products Ltd.
2.1. Different stages of taking a capital budgeting decision
2.2. Implications of the capital budgeting methods for Wombat Gmbh
2.3. The appropriate method for Wombat Gmbh
Finance is one of the core business activities and without financial management no business can run properly. The overall financial actions are overseen by special officer designated as the Chief Financial Officer (CFO). Identifying the required amount of funds, analysing the different sources of funds, raising funds, managing working capital, taking decisions regarding capital investments are the major and core financial activities of a business. Hereby, this report will try to focus on the major financial areas like cash flows, working capital management and capital budgeting decisions.
Cash Flow is the amount of cash and cash equivalents that the company receives and makes payments as the part of the day to day business activities (Al-Ali, 2003). The cash flow can be either inflow or outflow. The making payment of cash to creditors and other parties comprises the cash outflow. On the other hand, all receipt of cash and cash equivalents consists of the cash inflow. Cash Flow statement covers all the cash transactions.
Working capital is the capital needed for the business for running its day to day operation. It consists of the current assets such as cash, short term investments, accounts receivables, inventory, bank balance, advance payments etc. and the current liabilities such as payables, overdrafts, unearned earnings short term debts etc (Brealey, Myers and Allen 2015) The current assets are the assets that have a life of one year or less. In the same way the current liabilities also have a maturity of one year or less. The net working capital is the currents assets net of current liabilities.