act 480 db4
Regarding the components of working capital: In the following debate, take a position of an investor who wants to evaluate the liquidity of a company. As the investor, identify one of the two positions you are taking and defend and support it with at least two peer-reviewed sources:
Position #1: Argue for including inventory, prepaids, and deferrals in working capital.
Position #2: Argue against including inventory, prepaids, and deferrals in working capital.
Solution Preview
Working Capital and Liquidity of a Company
Working capital refers to a financial metric that is used by organizations to represent the operating liquidity of the organization. When the working capital is included with fixed assets as equipment and plant, it is referred to as operating capital. Working capital has several components including accounts payable, accounts receivable, inventory, and cash. Working capital is an essential aspect that is taken into consideration by investors before they make an investment decision. Through assessment of the working capital, investors can determine the ability of the company to meet short-term obligations since it affects the liquidity of the company. as an investor who has been given two positions on working capital, it is imperative that one assesses each of the options before taking a position, the first position is including inventory, prepaids
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