Reorder Point and Working Capital

The reorder quantity formula can be used to calculate the minimum level of inventory a business should maintain to be able to satisfy customer demand for its products. The calculation takes into account supplier lead times and customer demand and helps a business to operate at its optimum level of working capital.

Last modified January 29th, 2019 by Michael Brown
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Economic Order Quantity and Working Capital

This inventory carrying cost formula can be used to calculate the economic lot size (EOQ) which a business should use to place purchase orders with suppliers. The total inventory cost calculated can be used in the financial projections template by adjusting the inventory days assumption.

Last modified April 11th, 2019 by Michael Brown
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Working Capital Needs Calculator

The working capital needs of a business reflect the amount of funding required to finance operating assets such as inventory and accounts receivable offset by credit obtained from suppliers and other liabilities. This calculator provides an estimate of the total working capital needs and the percentage it has to revenue.

Last modified May 9th, 2019 by Michael Brown
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Working Capital Financing Strategy

A business needs to finance its working capital requirements using a combination of short term and long term funding sources. Permanent working capital is best financed with long term funding such a equity or long term loans, whereas temporary seasonal working capital is best funded by short term loans or overdraft facilities.

Last modified January 29th, 2019 by Michael Brown
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Cash Flow vs Profit

A business needs to understand that there is a difference between profit and cash. Eventually a business needs to be able to make a profit, however, providing it is properly financed and has adequate cash flow a business can survive for a considerable period of time without profits.

Last modified January 29th, 2019 by Michael Brown
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Cash Conversion Cycle Calculator

The cash conversion cycle calculator works out the number of days in the cash cycle of a business. It estimates the level of inventory, accounts receivable, and accounts payable needed for a given level of trading operations and determines the funding required to finance working capital.

Last modified January 29th, 2019 by Michael Brown
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Cash Conversion Cycle Calculation

All businesses have a cash conversion cycle, it is the time in days between paying for inventory and receiving the cash from the sale of that inventory from customers. The cash conversion cycle formula can be used to calculate the number of days.

Last modified January 29th, 2019 by Michael Brown
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How to Calculate Working Capital Requirement

The fundamentals of a businesses trading activity are that it buys from a supplier, holds inventory, and sells to the customer. The amount of finance a business needs to carry out this day to day trading activity is known as the working capital requirement, and varies from industry to industry depending on the amount of time the business takes to pay suppliers, the amount of inventory held, and the time it takes to collect cash from customers.

Last modified May 9th, 2019 by Michael Brown
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Working Capital

Business working capital is an important concept, and one often referred to by investors and lenders.

An increase in working capital results in a corresponding decrease in cash flow and additional funding is therefore required to finance it.

Last modified January 29th, 2019 by Michael Brown
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