Page 266 - Cambridge IGCSE Business Studies
P. 266
Cambridge IGCSE Business Studies Section 5 Financial information and decisions
Cash
Goods sold Inventories
The working
to customers capital cycle purchased
on credit on credit
Production
of goods for
sale
264
KEY TERM Figure 20.4 The working capital cycle
Credit sales: goods sold to
customers who will pay for these at The length of the working capital cycle depends on:
an agreed date in the future.
■ the level of inventories held by a business and how quickly suppliers are paid
■ how long it takes to produce goods for sale
■ how quickly the business finds buyers for its products
■ the length of the credit period customers are given – credit sales.
Current assets and current
liabilities: see Chapter 22, A business can improve its working capital by:
page 278.
■ reducing inventory levels
■ negotiating longer credit terms with its suppliers
■ reducing the amount of time it takes to receive payments from customers who have
been supplied goods on credit terms.
Improving working capital:
see Chapter 19, page 249. You will learn in Chapter 22 that working capital is the difference between current
assets and current liabilities.
TEST YOURSELF
1 Define the term ‘working capital’.
2 How is working capital calculated?
3 Why is working capital important to a business?
