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Assets are divided into two parts : current assets: accounts receivables, inventory, work in process, cash, etc., that are constantly flowing in and out of a firm in the normal course of its business, as cash is converted into goods and then back into cash, fixed assets: land, buildings, equipment, machinery, vehicles, leasehold improvements, and other such items. Fixed assets are not consumed or sold during the normal course of a business but their owner uses them to carry on its operations. If we look to the company's financial resources (owners equity + liabilities) and the assets, we can determine the part of the owners equity which finances the current assets; in other words the business activity of the business. This is the working capital. Conversely, more working capital is weak, and the working capital requirements financed by the liabilities (negative treasury), more the company is financialy weak and depends on its creditors (banking, suppliers) to maintain and develop its activity.
Dynamic view of the balance sheet: the working capital and the working capital requirements
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1/18/2014 9:34 PM
Understand and analyze the balance sheet < Assess your customers
http://www.creditmanagement-tools.com/understand-and-analyze-the-bala...
2 of 3
1/18/2014 9:34 PM