ADEQUACY OR INADEQUACY OF WORKING CAPITAL: ITS IMPORTANCE AND IMPLICATION.

(Accounting)

ADEQUACY OR INADEQUACY OF WORKING CAPITAL: ITS IMPORTANCE AND IMPLICATION.

CHAPTER ONE

INTRODUCTION

The primary aim of establishing or going into business is to optimize profit and as well as to ensure continuity of that business concern. When one person (sole trader ) of group of person (partnership of companies limited by shares or guarantee) intends forming a business entity he will need both fixed and current assets to facilitate a smooth take off, these fixed and current assets will by funded from both long term liabilities and current liabilities (or capital) as the case may be.

            On formation, the business as an entity will be provided with fixed assets, such as building and premises, plant and machinery. Equipments, motor van etc. But form all indication we know and we see that these fixed assets itemized above cannot achieve the aforesaid aims of establishing the business. This is so because the fixed assets where not bought for the purpose of resale as a result any project cannot be directly accruable from its continuous stay.

            From the foregoing, it is easily deduceable from it that the business as a going concern need some indispensable items or factors that will determine its profitability and its ability to withstand the test of time in a prevalent competitive environment

            These indispensable items are operational and resolving in contrast with fixed capital and this is what we termed as the “”working capital”.

BACKGROUND OF THE STUDY

The need for working capital would not have been necessary or relevant if not its inherent problems.

            In the light or this I wish to state a modern approach in discussing this topic in bits so as a voice in this course or profession of this presentation.

            The need for cash tentention or holding cannot be over emphasized because it goes a long way in tackling problems resulting from inflation and it’s like.

            Therefore, attempts wanted be made to discuss the problems, prospectus of this topic for the benefits of those who care to read of go through the content of this piece of work.  

STATEMENT OF PROBLEM

For many years, they are some historical cause of adequacy or inadequacy of working capital.

            What other likely causes are and knowing the cause and also findings remedies to them. Knowing all these problems does the government, financial institutions and private individual and role in the cause and remedies.

            As a result of this problems firms easily find themselves go or walk the path of liquidation because they failed to make provisions for the rainy day”.

            This piece of work is an attempt in providing last solution to these problems and ways of curbing these problems forever.

OBJECTIVE OF STUDY

1.            The project is hopefully aimed at identifying the causes of adequacy of working capital.

2.            Corrective measure/remedies that could be adopted to the consequences of adequacy or inadequacies of working capital in the economy.

SIGNIFICANCE OF THE STUDY

This study is significant in that:

1.            A lot of financial institutions have failed and more may still fall due to inadequacy of working capital.

2.            because many financial institutions and banks of forms have fallen or liquidated, deposits confidence have been withdrawn leading to how banking habit which is not favourable, while the liquidated firms find it difficult to off set its in debtedness.

3.            To show is blamed for firms failures.

DEFINITIONS OF TERMS

Meaning of working capital

            The working capital of a business concern is the firms investment in short – term assets stock, les current liabilities used to finance the current assets.

PERMANENT WORKING CAPITAL

This represents the volume of fund have by an organisation to meet it financial obligation for sourcing raw materials work in progress, stock of finished goods spare parts etc.

COMPONENT OF WORKING CAPITAL

These are those components or items that makes rep the working of the firm.

CURRENT LIABILITIES

Whenever an organisation is under obligation to  pay a debt to another party within one year, such payment may be classified as current liabilities.

EXCESS WORKING CAPITAL

Excess working capital is a lot of  fund which would have been used for profit able investment but are held to the current assets as working capital.

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