Change in Capital
Increases in the capital are different changes in the networking capital from one accounting period to next. The company’s goal is to handle any changes in capital while minimizing the need to adopt any additional funding.
The company should find a way to get funding to capital assets, such as:
– Shares sale.
– Profits increment.
– Assets Sale
– New Debt collection
Here are the reasons which could cause changes in the capital:
– Credit Policy: When the company make the credit policy strict, it reduces the amount of receivable accounting outstanding which freezes up the cash. Which could cause offset decline in net sales and has a negative
– Collection Policy: The extraordinary collection policy might result in shrinking the accounts receivable total number.
– Inventory Planning: The increase in inventory levels results in the rate of inventory investment which results in a negative effect.
– Purchasing practices: The more investment in purchasing department cause more use of cash and increase investment with larger volumes.
– Accounts Payable Period: When a company ignores or negotiates its payment suppliers for a longer period, which contains a source of cash increase prices in responses.
– Rate of Growth: Major uses of cash is done when the company is growing fast, which makes it large changes in the capital every month
– A company should follow the changes and monitor it, which makes it have to fine-tune the capital levels. It is essential to understand the capital in the form of cash flow forecasting so that the company doesn’t go an
unexpected supply or need for cash