Question
Working capital is generally a significant part of the total assets of any business. For example in the case of Zamefa Plc, gross working capital
Working capital is generally a significant part of the total assets of any business. For example in the case of Zamefa Plc, gross working capital was 80% of the total assets of the company as at 30th September 2018(Zamefa, 2018 annual report). Consequently, the management and funding of working capital is an important decision that management need to take as part of the financial management strategy for a company. Regarding funding of working capital there are three main strategies that can be followed namely Matching Strategy, Relaxed Strategy and Aggressive Strategy.
- Describe the characteristics of the three strategies highlighted above. (6 marks)
- If a company had the following elements of the Statement of Financial Position as at 31st December, 2019:
Non-Current Assets K5,500,000
Current Assets K2,700,000
Total Assets K8,200,000
Explain how the above assets would be financed using (i) the Matching Strategy and (ii) the Relaxed Strategy. (4 marks)
- Discuss the consequences of overtrading (10 marks)
- Discuss the major factors a credit manager would consider when assessing the creditworthiness of a particular customer. (5 marks)
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