UNIT 18: MANAGEMENT OF WORKING CAPITAL

Task 1: Answer the following questions

1. What are 2 types of working capital? Its purposes?

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2. What are 3 major applications of working capital?

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3. What are tasks of financial management in managing working capital?

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Task 2: Fill in the blank

1. ....................can be broken down into two types: permanent and temporary. (working capital)

2. .....................working capital is tied up in keeping the business flowing throughout the year
(permanent)

3. ....................working captial is need from time to take account of seasonal, cyclical or expected
fluctuation in the business. (temporary)

4. Temporary working capital is usually serviced from an ............(overdraft facility)

5. Both types of working capital have three major …............: inventories, debtors and cash.
(applications)

6. Inventories can be ..............into inventories of raw materials, working in progress and finished
goods. (divided)

7. Inventories can ..............an enormous amount of excess working capital if not well managed.

(soak up)

8. Over-stringent control can lead to ............in production. (disruption)

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9. The .............. philosophy is aimed at reconciling conflicting interests and keeping inventory
costs to a minimum. (just – in – time)

Task 3: Make up a full sentence using suggested words

1. Profitability/ determined/ part/ way/ company/ manage/ working capital

Profitabilty is determined in part by the way in which the company manages its working
capital.

2. There/ drop/ profit/ if/ working capital/ raise/ without/ rise/ production or margins

Basically, there will be a drop in profit if working capital is raised without corresponding a
rise in production or margins.

3. Permanent/ working capital/ use/ keeping/ business/ flowing/ throughout/ year

Permanent working capital is used to keeping the business flowing throughout the year.

4. Temporary/ working capital/ need/ sometimes/ take account/ seasonal/ cyclical/

unexpected fluctuation/ business

Temporary working capital is needed for sometimes to take account of seasonal, cylical or
unexpected fluctuations in the business.

5. Inventories/ can/ divide/ raw materials/ work in progress/ finished goods

Inventories can be further divided into inventories of raw materials, work in progress and
finished goods.

6. It/ job/ financial manager/ minimize/ raw materials/ level/ work in progress/ quantity/
finished goods.

It is the jon of the financial manager to minimize the stocks of raw materials, the level of work
in progress and the quantity of finished goods.

7. debtor side/ working capital/ require/ finance/ gap/ payment/ suppliers/ payment/
customers

On the debtor side, working capital is required to finance the gap between payment due to
suppliers and payment owed by customers.

8. manage/ cash/ ,/ financial manager/ have to/ determine/ adequate cash/ available/
meeting/ day-to-day debts/ and/ deal/ contingencies.

In managing cash, the financial manager has to determine that adequate cash is always
available for meeting the company’s day-to-day debts and dealing with contingencies.

9. manage debtors/ financial manager/ have to/ negotiate/ generous credit terms/ suppliers/

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In managing debtors, the financial manager has to negotiate generous credit terms with
suppliers but minimal credit is offered to customers.

10. one/ principal/ functions/ financial management/ provide/ correct amount/ working
capital/right time/ right place/ realize/ greatest/ return/ investment

One of the principal functions of the financial management is to provide the correct amoun of
working capital at the right time and in the right place to realize the greatest retrun on
investment.