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Short essey on working capital management
Working capital management literature review
Short essey on working capital management
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Working Capital Management Worksheet
Concept Application of Concept in Scenario Citation of Concept in Reading Personal Experience in your Organization
Short-term financing plan:
Bank loan borrowing from the bank.
Stretching payable putting off paying its bills.
Due to the situation that Lawrence has put the company into, in which Lawrence had borrowed from the bank and deferred payment to Gartner by a week. Brealey, 2005, p. 852 In order to meet the liabilities of deferred tax payment and the company's payable obligation, my company has applied for a revolving credit line by our lender. So for the short-run, my company where I am working for has managed to make payment on time.
Financial budgeting:
Cash inflow.
Cash outflow.
The task imposed on the CFO of planning cash inflow and cash outflow to retain at least a minimum of $50,000 each week while keeping the loan burden to the least level required a careful financial budgeting. Brealey, 2005, p.849 At my company, a budget for expecting expenses associated with a particular property will be planned. Improvements on the property and projected cash inflow will be assessed in order to have the needed cash handy for the upcoming month.
Credit Management:
Accounts receivables.
Accounts payables.
Regarding the task required based on the scenario in the simulation, the CFO has to negotiate short-term payment and collection arrangements with its business partners for keeping the amount of cash the company needs to borrow as low as possible. Brealey, 2005, p.814 Property managers are told to collect rents from tenants as much as possible each month. To put forth this effort and encouraging them to really make the attempts, special bonus is paid out if a certain percentage on total rent for the property has been reached.
Working Capital Management Worksheet
Concept Application of Concept in Scenario Citation of Concept in Reading Personal Experience in your Organization
Cash:
Offering liquidity.
Being better prepared in case of cash shortage.
The requirement of retaining at least a minimum of $50,000 on cash applies to the concept that cash has more liquidity to offer.
Also having enough cash on hand increase the chance for the company to survive for unexpected event as illustrated in the scenario where additional liabilities were due because of poor packaging and handling about the shipped equipments.
Brealey, 2005, p.821 This concept can also be observed in the company where I am with. Besides the weekly check cut to meet our obligations, additional cash has been put aside by our controller. Once it has reached the set level, surplus will be distributed to other properties that have funding shortages for planned projects.
Net working capital represents organization’s operating liquidity. In order to compute the net working capital, total current assets are divided from total current liabilities. When there is sufficient excess of current assets over current liabilities, an organization might be considered sufficiently liquid. Another ratio that helps in assessing the operating liquidity of as company is a current ratio. The ratio is calculated by dividing the total current assets over total current liabilities. When the current ratio is high, the organization has enough of current assets to pay for the liabilities. Yet, another mean of calculating the organization’s debt-paying ability is the debt ratio. To calculate the ratio, total liabilities are divided by total assets. The computation gives information on what proportion of organization’s assets is financed by a debt, and what is the entity’s ability to pay for current and long term liabilities. Lower debt ratio is better, because the low liabilities require low debt payments. To be able to lend money, an organization’s current ratio has to fall above a certain level, also the debt ratio cannot rise above a certain threshold. Otherwise, the entity will not be able to lend money or will have to pay high penalties. The following steps can be undertaken by a company to keep the debt ratio within normal
Furthermore, the cash-flow demonstrates the monetary receipts and monetary expenses in a certain time period. The cash-flow budget greatly centers on viability, which relates to the organization’s generating enough cash to meet both short-term and long-term financial obligations to maintain their existence (Finkler et al., 2013). In essence, an organization generating more cash than using in their operations produces a more
...ek possible financing if necessary. The director of the unit must budget resources carefully so that in periods of cash excess, resources can be sensibly invested and capital deficits covered by the unit without the need for unforeseeable measures.
This borrowing is not shown specifically at the beginning when it took place. Therefore, the budget can not accurately forecast financing needs. If the outflows were clustered at the beginning of the month and collections were heaviest towards the end of the month, it would understate the funds needed. In order to correct inaccuracies Alpine Wear should make a daily budget for the actual cash control. Daily cash budgets are more essential as they make sure the company has the cash on hand and loans are satisfactory enough to meet actual, daily, cash needs, not
Budgeting Assignment A company's budget serves as a guideline in planning and committing costs in order to meet tactical and strategic goals. Tactical goals such as providing budgetary costs for daily operations, and strategic objectives that include R&D, production, marketing, and distribution are all part of the budgeting process. Serving as a guideline rather than being set in stone, the budget is a snapshot of a manager's "best thinking at the time it is prepared." (Marshall, 2003, p.496)
The following content provided will include information regarding Nikes Inc. cash management strategies, which will include more in depth information from the previous group paper. In addition, working capital recommendations will be provided to senior management base on next year’s in the pro-forma financial statements.
Obligation financing includes an organization offering notes, securities, or bills to speculators or loan specialists to fund-raise for the business. Paying off debtors financing, the speculators who buy these bills, bonds, or notes are an organization's banks, and they are compensated with enthusiasm for their underlying venture. Obligation financing is frequently contrasted with value financing, another regular path for organizations to raise stores. Be that as it may, one favorable position that obligation financing has over value financing is that in the red financing, speculators are not given an offer or incomplete responsibility for business and in this way can't impact the organization to a similar degree (Ghosh, 2010). Other wage going into the exceptional ventures store would incorporate wage from speculations of the
If you receive cash you are likely to save it and put it in the bank. Thus, what a business sacrifices by having to wait for the cash inflows is the interest lost on the sum that would have been saved.
Company policy requires the cash to be received before or after rendering a service. Due to some business reasons, the management has been extending credit to clients contrary to the guidelines.
Capital budgeting is one of the primary activities of a company. Most of the company uses capital budgeting for decision making process of selecting and evaluating long-term investment. The company have to make a right decision with respect to investment in fixed asset such as purchasing of new equipment and delivery vehicles, constructing additions to buildings and many more. The decision must be right because of the project involve huge amount of cash outflow and it is committed for many years.
A financial plan is a plan that focuses on the long term goals; it is the continuous process of forecasting and deciding how much to invest in order to meet the strategic goals and objectives needed according to the funds at the business. The objectives of a financial plan is to ensure that the finds are available whenever required and that firm does not raise any unnecessarily funds. Whereas, a budget can be defined as a plan for the short term. It is a plan only and not a forecast. They are usually prepared for one year or less period. A budget can
The management of cash is essential to the survival of any organization. Managing an organization’s financial operation requires knowledge of the economy and ways to maximize revenue. For any organization to operate on a daily basis adequate cash flow is required. Without cash management the organization will be unable to function because there is no cash readily available in case of inconsistencies in the market. Cash is also needed to keep the cycle of the company’s operations going.
• Financing • Organizational payment policies • Risk
It requires an adequate and sound organizational structure, that is, there must be a definite assignment of responsibility for each function of the enterprise. Budgeting compels all the members of management, from the top to bottom to participate in the establishment of goals and plans. Budgeting compels departmental managers to make plans in harmony with the other departments and of the entire enterprise. Budgeting helps the management to put down in figures what is necessary for a satisfactory performance. Budgeting helps the management to plan for the most economical use of labor, material and capital. Budgeting tends to remove the cloud of uncertainty that exists in many organizations, especially among lower levels of management, relative to basic policies and objectives. Budgeting promotes an understanding among members of management of their co-workers' problems. Budgeting force management to give adequate attention to the effects of general business conditions. Budgeting aids in obtaining bank credit as banks commonly require a projection of future operations and cash flows to support
The first subject is the matter of cash, cash, and cash. Mr. Steverman states that individuals need to have readable access to a relatively large proportion of cash. It is recommended that young individual have access to ten thousand dollars worth of cash. However in today’s market it is recommended that individuals have readable access to an amount of cash that is in the range of fifteen to twenty thousand dollars. The need for readable access to cash is for the possibility that you may lose your job. The main reason of the readable cash is so that if an individual needs the cash for an emergency the individual will be able to access it at their own bank. This cash can be used for a wide array of things in the case of an emergency. If an individual losses their job, they will need to pay bills and purchase food. The amount of the money may differ if the individual is engaged into a family, as the family will have higher bills and needs for money.