Financial Management: Summary and Definitions.
Financial Management: Summary and Definitions
Analysis of ch16:
Working capital management is a managerial accounting strategy focusing on maintaining efficient levels of both components of working capital, current assets and current liabilities, in respect to each other. Working capital management ensures a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses. Implementing an effective working capital management system is an excellent way for many companies to improve their earnings. This chapter discusses the management of current assets, particularly cash, marketable securities, inventory, and receivables. This chapter answers some Basic questions involving working capital management such as how much cash and inventory should be kept on hand? Will it be affect the liquidity of the firm to sell on credit or not? And how and from which sources the short term financing can be obtained? Therefore this chapter helps us in answering these questions by analyzing the various options available to a firm.
The first important concept mentioned is Cash Conversion Cycle. the net number of days from the outlay of cash for raw material to receiving payment from the customer. As a management tool, this metric makes explicit the inter-relatedness of decisions relating to inventories, accounts receivable and payable, and cash. This is very important because a firm needs to know about the time that it takes to convert its production into sales and into cash receipts and also the payment periods in order to have a check on its liquidity. Moreover, investment policies for current assets are also being highlighted for e.g. relaxed current asset investment policy, restricted current asset policy etc. these policies can be effected by changes in technology. Furthermore, current assets financing policies such as permanent current assets, temporary current assets etc are also discussed.
This chapter also discusses the importance
Analysis of ch16:
Working capital management is a managerial accounting strategy focusing on maintaining efficient levels of both components of working capital, current assets and current liabilities, in respect to each other. Working capital management ensures a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses. Implementing an effective working capital management system is an excellent way for many companies to improve their earnings. This chapter discusses the management of current assets, particularly cash, marketable securities, inventory, and receivables. This chapter answers some Basic questions involving working capital management such as how much cash and inventory should be kept on hand? Will it be affect the liquidity of the firm to sell on credit or not? And how and from which sources the short term financing can be obtained? Therefore this chapter helps us in answering these questions by analyzing the various options available to a firm.
The first important concept mentioned is Cash Conversion Cycle. the net number of days from the outlay of cash for raw material to receiving payment from the customer. As a management tool, this metric makes explicit the inter-relatedness of decisions relating to inventories, accounts receivable and payable, and cash. This is very important because a firm needs to know about the time that it takes to convert its production into sales and into cash receipts and also the payment periods in order to have a check on its liquidity. Moreover, investment policies for current assets are also being highlighted for e.g. relaxed current asset investment policy, restricted current asset policy etc. these policies can be effected by changes in technology. Furthermore, current assets financing policies such as permanent current assets, temporary current assets etc are also discussed.
This chapter also discusses the importance