Trade Credit -Trade credit is a 

business-to-business (B2B) agreement in which a customer can purchase goods

without paying cash up front, and paying the supplier at a later scheduled date. Usually, businesses that
operate with trade credits will give buyers 30, 60, or 90 days to pay, with the transaction recorded through an
invoice.Trade credit can be thought of as a type of 0% financing, increasing a company’s assets while deferring
payment for a specified value of goods or services to some time in the future and requiring no interest to be
paid in relation to the repayment period.Trade credit is an advantage for a buyer. In some cases, certain buyers
may be able to negotiate longer trade credit repayment terms, which provides an even greater advantage.
Often, sellers will have specific criteria for qualifying for trade credit

Accrued Expenses - An accrued expense, also known as accrued liabilities, is an accounting term that refers to
an expense that is recognized on the books before it has been paid. The expense is recorded in the accounting
period in which it is incurred. An example of an accrued expense is when a company purchases supplies from a
vendor but has not yet received an invoice for the purchase. Other forms of accrued expenses include interest
payments on loans, warranties on products or services received, and taxes. An accrued expense, also known
as an accrued liability, is an accounting term that refers to an expense that is recognized on the books before it
has been paid. The expense is recorded in the accounting period in which it is incurred. Since accrued
expenses represent a company's obligation to make future cash payments, they are shown on a company's
balance sheet as current liabilities.

Deferred Income - Deferred revenue, also known as unearned revenue, refers to advance payments a company
receives for products or services that are to be delivered or performed in the future. The company that receives
the prepayment records the amount as deferred revenue, a liability, on its balance sheet.Deferred revenue is a
liability because it reflects revenue that has not been earned and represents products or services that are owed
to a customer. As the product or service is delivered over time, it is recognized proportionally as revenue on
the income statement. Deferred revenue is recognized as a liability on the balance sheet of a company that
receives an advance payment. This is because it has an obligation to the customer in the form of the products
or services owed. The payment is considered a liability to the company because there is still the possibility
that the good or service may not be delivered, or the buyer might cancel the order.

The reliability of a company's financial reporting is the key to its success. A company's success is reflected in its

financial position.
 Sound financial management involves the provision of funds for the business and then how it is spent
on the different activities of the business. It includes the recording of numerical data to be analyzed to
help assess the financial health and current financial performance of a business.
 Financial decisions often impact the quantity of a company's current resources. This is because the
need for working capital often decreases as long-term investments are expanded.
 Decisions on the structure of long-term investments are part of any company's financial choices. Such
decisions include determining whether to use bonds or equity to collect long-term funds depending on
the relationship between risk and return.
The importance of financial management is explained below −
 It provides guidance in financial planning.
 It assists in acquiring funds from different sources.
 It helps in investing an appropriate amount of funds.
 It increases organisational efficiency.
 It reduces delay production.
 It cut down financial costs.
 It reduces cost of fund.
 It ensures proper use of fund.
 It helps business firm to take financial decisions.
 It prepares guideline for earning maximum profits with minimum cost.
 It increases shareholders’ wealth.
 It can control the financial aspects of the business.
 It provides information through financial reporting.
 It makes the employees aware of saving funds.
Nature of Business - The requirement of working capital depends on the nature of business. The nature of
business is usually of two types: Manufacturing Business and Trading Business. In the case of manufacturing
business, it takes a lot of time in converting raw material into finished goods. Therefore, capital remains invested
for a long time in raw material, semi-finished goods and the stocking of the finished goods.
Consequently, more working capital is required. On the contrary, in case of trading business the goods are sold
immediately after purchasing or sometimes the sale is affected even before the purchase itself. Therefore, very
little working capital is required. Moreover, in case of service businesses, the working capital is almost nil since
there is nothing in stock.
Technology - If a company is using labour intensive technique of production, then more working capital is
required because company needs to maintain enough cash flow for making payments to labour whereas if
company is using machine-intensive technique of production then less working capital is required because
investment in machinery is fixed capital requirement and there will be fewer operative expenses.
Market - If the market is competitive then company will have to adopt liberal credit policy and to supply goods on
time. Higher inventories have to be maintained so more working capital is required. A business with less
competition or with monopoly position will require less working capital as it can dictate terms according to its own
requirements.

There are various measures of Financial Leverage

 Debt Ratio: It is the ratio of debt to total assets of the firm which means what percentage of total assets
is financed by debt.
 Debt Equity Ratio: It is the ratio of debt to the equity that signifies how many dollars of debt is taken
per dollar of equity.
 Interest Coverage Ratio: It is the ratio of profits to interest. This ratio is also represented in times. It
represents how many times the interest is the available profit to pay it off. The higher such ratio, the
higher the interest-paying capacity. The reciprocal of it is income gearing.
Financial leverage is the use of debt to buy more assets. Leverage is employed to increase the return on
equity. However, an excessive amount of financial leverage increases the risk of failure, since it becomes
more difficult to repay debt.
The financial leverage formula is measured as the ratio of total debt to total assets. As the proportion of
debt to assets increases, so too does the amount of financial leverage. Financial leverage is favorable
when the uses to which debt can be put generate returns greater than the interest expense associated
with the debt. Many companies use financial leverage rather than acquiring more equity capital, which
could reduce the earnings per share of existing shareholders.

Inventory Management Techniques

 ABC Analysis: This method works by identifying the most and least popular types of stock.
 Batch Tracking: This method groups similar items to track expiration dates and trace defective items.
 Bulk Shipments: This method considers unpacked materials that suppliers load directly into ships or
trucks. It involves buying, storing and shipping inventory in bulk.
 Consignment: When practicing consignment inventory management, your business won’t pay its
supplier until a given product is sold. That supplier also retains ownership of the inventory until your
company sells it.
 Cross-Docking: Using this method, you’ll unload items directly from a supplier truck to the delivery
truck. Warehousing is essentially eliminated.
 Demand Forecasting: This form of predictive analytics helps predict customer demand.
 Dropshipping: In this practice, the supplier ships items directly from its warehouse to the customer.
 Economic Order Quantity (EOQ): This formula shows exactly how much inventory a company should
order to reduce holding and other costs.
 FIFO and LIFO: First in, first out (FIFO) means you move the oldest stock first. Last in, first out (LIFO)
considers that prices always rise, so the most recently-purchased inventory is the most expensive and
thus sold first.
Profitability Index
The profitability index (PI), alternatively referred to as value investment ratio (VIR) or profit investment ratio
(PIR), describes an index that represents the relationship between the costs and benefits of a proposed project.
It is calculated as the ratio between the present value of future expected cash flows and the initial amount
invested in the project. A higher PI means that a project will be considered more attractive. The profitability
index is an appraisal technique applied to potential capital outlays. The method divides the projected capital
inflow by the projected capital outflow to determine the profitability of a project. As indicated by the
aforementioned formula, the profitability index uses the present value of future cash flows and the initial
investment to represent the aforementioned variables.The PI is helpful in ranking various projects because it
lets investors quantify the value created per each investment unit. A profitability index of 1.0 is logically the
lowest acceptable measure on the index, as any value lower than that number would indicate that the project's
present value (PV) is less than the initial investment. As the value of the profitability index increases, so does
the financial attractiveness of the proposed project.