The student provides a significant insight into the elements of working capital. There is a mention of how the working capital affects the performance of an organization. In the essay, the student provides two examples of working capital, namely, Cash Conversion Cycle and cash budget, and explains their significance in a company. The observation that a short Cash Conversion Cycle is vital for a company is correct since firms with aggressive liquidity policy report enhanced profitability and value (Chang, 2018). Besides, the student mentions that such an outcome is a result of managerial policies. However, the student failed to mention the impact of a long Cash Conversion Cycle, which is bankruptcy. This point is vital in making the audience understand the significance of the Cash Conversion Cycle in a business operation. Moreover, the student should have featured the details in explaining how a short Cash Conversion Cycle is vital for business. One of the points that could have been mentioned is the increase in sales through the extension of trade credit sales and thereby strengthening the relationship between a company and customers (Chang, 2018). Besides, a short Cash Conversion Cycle results in extensive inventories that prevent interferences in the production process.
Nevertheless, the student explained the concept of cash budget well. There is an example provided to strengthen the argument. By explaining how the cash budget is needed when illustrating a company’s financial position to the shareholders, the student establishes a connection between the class concepts and real-life circumstances. This example enables a reader to perceive the benefits of having a high cash flows within a company. Furthermore, the students highlighted the cash budget as one of the indicators of a company’s performance. In the end, the student reminds the readers of the significance of working capital as a management tool. Indeed, the two elements of working capital can determine the future and decisions of a company based on the student’s observations.
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References
Chang, C. C. (2018). Cash conversion cycle and corporate performance: Global evidence. International Review of Economics & Finance , 56 , 568-581.doi:10.1016/j.iref.2017.12.014
