Working capital needs - Workingcapitalneeds Different...

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Working capital needs Different industries have different optimum working capital profiles, reflecting their methods of doing business and what they are selling. • Businesses with a lot of cash sales and few credit sales should have minimal trade debtors. Supermarkets are good examples of such businesses; • Businesses that exist to trade in completed products will only have finished goods in stock. Compare this with manufacturers who will also have to maintain stocks of raw materials and work-in-progress. • Some finished goods, notably foodstuffs, have to be sold within a limited period because of their perishable nature. • Larger companies may be able to use their bargaining strength as customers to obtain more favourable, extended credit terms from suppliers. By contrast, smaller companies, particularly those that have recently started trading (and do not have a track record of credit worthiness) may be required to pay their suppliers immediately. • Some businesses will receive their monies at certain times of the year, although they may incur
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This note was uploaded on 10/12/2011 for the course ACCOUNTING 221 taught by Professor Staff during the Spring '11 term at North South University.

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Working capital needs - Workingcapitalneeds Different...

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