Professional Documents
Culture Documents
Lecture 2 MO442 Effect On ROI
Lecture 2 MO442 Effect On ROI
03/10/2017 1
Where does value come from?
Shareholder value can be main objective of
businesses
Costs Profit
Plus
Inventory Divide Return
on capital
Cash and Employed
Debtors Capital
Minus Employed
Creditors
Plus
Fixed
Assets
Working Capital
Combination of:-
Inventory
Cash and debtors
Less
Creditors
Is called working capital
Each of the elements of working capital is considered in
turn
Inventory
An asset in many businesses
Can buffer uncertainty in demand
Permit immediate availability when replenishment
times are lengthy
However inventory often regarded as a hindrance:-
- It ties up cash
- It needs resources to be stored
- It goes obsolete
Cash and Debtors