Sma-Operating Cycle

Working capital cycle

Generally, working capital simply refers as current assets used in operations (Brigham & Ehrhardt, 2002). It associates with your day-to-day operation process of business. More than that, working capital is converted into various form and work according to itself cycle, which indicated as “Working capital cycle” (WCC). This will help the operation works smoothly and efficiency.

I. Improvement on WCC and implications

1. Cash

Working capital is computed as current assets less (minus) current liabilities. To enhance the working capital, there is a need to enhance the overall level of cash held by an accounting entity. One approach that XYZ limited should employ in boosting its cash levels is through increase in sales tremendously. This will enable it to sell more goods and thus boost the overall level of cash in the organization. Increase in sales level would nevertheless result to increase in trade receivables (Vijayakumar, 2001). This would equally result to increase in working capital in the organization. Trade receivables occur as a result of selling goods on credit. This implies that to increase the overall level of cash held by the organization, there would be a need for the organization to reduce the days sales are in receivables. By reducing the collection period on receivables, it will be in a position to collect cash from credit sales in a faster manner (Azam, 2011).

In order to improve cash levels, there is a need for the organization to boost efficiency in its operations. This would result to minimal utilization of resources in the organization keeping the cash levels high since it’s not utilized in non essential issues (Saghirs, 2011). Increase in efficiency would thus end up reducing the rate at which cash is utilized within the organization. This will ensure that cash levels in the organization remains high (Bhattacharya, 2009).

Additionally, there would be a need for the organization to renegotiate a longer...