Change in Activity Ratios: Illustration

In the previous segment, you defined the operating working capital and its ratios. However, these ratios may change based on changes in businesses that create an impact on the working capital. This impact on the working capital may lead to changes in business decisions, leading to changes in day-to-day operations.  

Let’s take a look at the next video to understand the impact on working capital due to change in business scenarios, through an example.

In the video, you learnt how to analyse the impact on working capital due to changes in business scenarios. In this case, you looked at the impact caused due to delays in payment from customers. An increase in the delay in payment from customers causes an increase in the amount of accounts receivable per day, thereby leading to an increase in working capital. Organisations would have to ask this increased amount in working capital from their fund holders to maintain their day-to-day operations.

In the next segment, you will learn about the drivers of operating working capital.