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Financial Markets and Bank Management - Coursework Example

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 This paper talks that currently, there are two loan applications for my review. The first application is from Rive Gauche Ltd that wishes to improve the working capital level. The second application is from Peng Shao, who is interested in taking up more loans in the form of the overdraft…
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Financial Markets and Bank Management
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Download file to see previous pages The company sells second-hand clothes in the African markets. Rive Gauche plans to explore a new market opportunity in Asia. The company plans to meet the demand in the new market by importing more clothes from Germany. Rive Gauche Ltd seeks for working capital funding through overdraft. The facts point that the company prefers meeting the shortage in its working capital by seeking for short-term sources of funds (bank overdraft). On that note, the current overdraft of the company stands at £ 90,000. The management plans to increase the overdraft level to £ 400,000, which is an increase by £ 310,000. In other words, the company is seeking for a loan worth £ 310,000 to meet its working capital needs as it explores the new market.
Working capital is arrived at by the following formula: working capital = (current assets – current liabilities). The company relies on its working capital to meet current obligations and run the day-to-day operations. Therefore, is advisable for managers to formulate and implement more efficient working capital management strategies. The primary reason behind the most effective strategy is to ensure the constant availability of sufficient levels of working capital. Rive Gauche Ltd.’s current assets are (stock + debts + cash) = (311,000 + 208,000 + 40,000) = £ 559,000. On the other hand, the current liabilities are (creditors + other liabilities) = (200,000 + 200,000) = £ 400,000. Based on the working capital formula, the company’s working capital = (559,000 – 400,000) = £ 159,000. The estimation states that Rive Gauche Ltd currently has £ 159,000 to meet its current obligations. The analysis clearly shows that working capital is not sufficient to cover the current obligations. Therefore, the company’s working capital requirement is determined as follows: working capital requirement = (current liability – working capital) = (400,000 – 159,000) = £ 241,000 (Bhattacharya 2009, pp). ...Download file to see next pagesRead More
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