FINA351, Managerial Finance - Chapter 16 Notes WORKING CAPITAL. Involves current assets and liabilities in the operating cycle

Size: px
Start display at page:

Download "FINA351, Managerial Finance - Chapter 16 Notes WORKING CAPITAL. Involves current assets and liabilities in the operating cycle"

Transcription

1 FINA351, Managerial Finance - Chapter 16 Notes WORKING CAPITAL Involves current assets and liabilities in the operating cycle Is important for every business major to understand because: (1) it is where new hires often start out in a business (2) it is cited as a major reason for business failure when not managed properly (3) it involves all functional areas of business (marketing, operations, accounting, finance) so just about everyone needs to know how it works. Net working capital equals current assets less current liabilities. Current ratio equals current assets divided by current liabilities. Operating cycle: The time period from when inventory is acquired to when cash is collected from sales. Consists of: (1) the inventory period (time it takes from acquisition to sale of inventory) (2) the accounts receivable period (time it takes from sale to cash collection). Cash cycle: The time period from when cash is paid out for inventory to when it is collected from sales. Is negative for some businesses (e.g. Dell, Wal-mart), which means that collections are made from customers before cash is paid out to suppliers. Wal-Mart

2 Operating Cycle = Inventory Period + Receivable Period Cash Cycle = Operating Cycle Payables Period S/T Credit S/T Investments Cash Cash Collect from Customer Purchase Inventory on Credit Make Sale Pay for Inventory Operating Cycle = Inventory Period + Receivable Period Cash Cycle = Operating Cycle Payables Period Inventory period - how long, on average, it sits on the shelf. Also called Days Sales in Inventory (see Ch. 3). Receivables period how long it takes to collect the receivables. Also called Days Sales in Receivables (see Ch. 3). Operating cycle time from when the invoice for inventory is received until the cash from the sale is collected. This equals the sum of the inventory period plus the receivables period. Shorter is better. Payables period how long it takes pay accounts payable. Cash cycle how long the firm is out cash (e.g. time from when it pays for its inventory until it collects from the sale). This equals the operating cycle minus the payables period. Shorter is better. Negative is great.

3 CURRENT ASSETS Too much current assets causes carrying costs. Examples: too much idle cash results in lost investment income & investment opportunities too much accounts receivable results in a non-income producing asset with an increasing chance of default and significant costs of monitoring and collecting. Also, there s the opportunity cost of what could have been done if the $$ was not tied up in A/R too much inventory results in a non-income producing asset that costs money to track, store and insure. Also, there s the opportunity cost of what could have been done if the $$ was not tied up in inventory. In addition, lots of inventory means more chance of spoilage, obsolescence or theft. Finally, too much inventory hides operating efficiencies. For these reasons, many firms have adopted JIT (Just in Time), which minimizes inventory and maximizes turnover. Too little CA causes shortage costs. Examples: too little cash results in deadly costs, insolvency and eventual bankruptcy. too little inventory results in stock outs, which lead to lost sales and lost customer goodwill. Also, unplanned reorder costs can be very expensive and be disruptive to operations. Just the right amount of CA (optimum point) is where the sum of carrying costs plus shortage costs is minimized. See chart. Current Assets in Practice Amount of CA varies among industries. Which industry would have more CA as a percent of total assets: A restaurant or a retailer? A flower shop or a jewelry store? Why? Overall, the amount of CA have been declining (from 50% of assets in the 1960s to about 40% today). This is due to efficiencies in communication, shipping, and information technology.

4 CURRENT LIABILITIES (S/T Financing) Unsecured: Secured: Trade credit: regular accounts with vendors, terms 2/10,n/30, etc. Line of credit: like a business credit card that you can write checks against Commercial paper: S/T notes payable by big, well-known corporations issued directly to investors (mutual funds, etc.) Compensating balance: balance in a bank account held to compensate if default occurs (i.e. bank would seize the money in the account if you failed to make your loan payment) A/R financing has two forms: assignment - borrow with receivables as collateral factoring - sell receivables to bank who collects money from your customers, which allows you to remove receivables off your balance sheet and replace them with cash; also, you don t have to deal with the time and effort to collect receivables. Conventional factoring is when the factor cannot come after you if your customers fail to pay (also called non-recourse financing). The biggest form of factoring is when businesses accept credit cards the businesses actually sell the receivable to VISA etc. and pay a factoring fee of 2-3% of sales to have VISA collect from the buyer. The bank behind the VISA card becomes the factor.) Would secured financing (e.g secured with receivables or inventory) likely have a higher or lower interest rate than unsecured financing?

5 Advantages to retailers of of selling receivables to credit card issuers (i.e. VISA)

6 Inventory financing has three forms: blanket lien - borrow with all inventory as collateral trust receipt - borrow with specific inventory as collateral field warehousing financing - independent warehouse supervises inventory for lender (e.g. consider Allied Crude Oil Vegetable Refining Co.) Pictured here is Tino De Angelis, CEO of Allied Crude Vegetable Refining Co., before he was sent to the slammer for inventory fraud. If his inventory, which was collateral for loans, had been stored in an independent field warehouse, he likely would not have been able to get away with the fraud. One of the biggest scams in modern finance was when Tino borrowed $200 million secured by large tanks of salad oil. But unbeknown to the foolish lenders, the company had significantly overstated its oil inventory using three methods: (1) 40-foot tanks were filled with 37 feet of seawater, which left 3-feet of oil floating on top for all the foolish lenders to admire. (2) Tino listed more tanks on the inventory records than actually existed. Then he had his men quickly repaint the numbers on the tanks after the lenders had examined them, thus causing the foolish bankers to count the same tanks twice. (3) Tino built underground pipes that could rapidly transfer oil from one tank to another, causing the same salad oil to be counted twice by the foolish lenders. In the end, the foolish lenders were left out in the cold looking for their $200 million and Tino was put in the slammer for 7 years. Current Liabilities in Practice Amount of current liabilities varies among industries. Generally, the more current assets there are, the more current liabilities there are. Overall, about 30% of total assets today are financed with current liabilities. This percentage has increased from 20% to 30% since 1960 as firms have relied more on S/T credit (restrictive policy.) WORKING CAPITAL POLICIES 1. Flexible - have a lot of current assets, little current liabilities. When needing funds, use cash and sell S/T investments. While considered a conservative "safe" approach, it can be inefficient and costly (carrying costs). Moreover, a high level of current assets hides inefficiencies such 2. Restrictive - have few current assets and instead rely on S/T financing for cash needs. An aggressive approach but comes with the risk of shortage costs. 3. Compromise - have the right amount of current assets and S/T financing. This balanced approach is the best.

7 Historically, firms have been moving towards a restrictive policy but with mechanisms to prevent shortage costs. Due primarily to technology, better communication, transportation, and payment options have allowed firms to reduce inventory (JIT), receivables, and other current assets.

1. Define the operating and cash cycles. Why are they important?

1. Define the operating and cash cycles. Why are they important? Short-Term Planning Learning Objectives 1. Define the operating and cash cycles. Why are they important? 2. Define the different types of short-term financial policy 3. Understand the essentials of short-term

More information

aggressive short-term financing policy amortization cash budget cash conversion cycle conservative short-term financing policy commercial paper

aggressive short-term financing policy amortization cash budget cash conversion cycle conservative short-term financing policy commercial paper aggressive short-term financing policy amortization cash budget cash conversion cycle commercial paper conservative short-term financing policy costly trade credit inventory blanket lien inventory conversion

More information

9. Short-Term Liquidity Analysis. Operating Cash Conversion Cycle

9. Short-Term Liquidity Analysis. Operating Cash Conversion Cycle 9. Short-Term Liquidity Analysis. Operating Cash Conversion Cycle 9.1 Current Assets and 9.1.1 Cash A firm should maintain as little cash as possible, because cash is a nonproductive asset. It earns no

More information

Chapter Sources of Short-Term Financing

Chapter Sources of Short-Term Financing Chapter Sources of Short-Term Financing Chapter 8 - Outline PPT 8-2 Sources of Short-Term Financing Trade Credit from Suppliers Net Credit Position Chartered Banks in Canada Types of Short-term Loans Interest

More information

The Nature, Elements and Importance of Working Capital

The Nature, Elements and Importance of Working Capital C. WORKING CAPITAL MANAGEMENT 1. The nature, elements and importance of working capital 2. Management of inventories, accounts receivable, accounts payable and cash 3. Determining working capital needs

More information

Inventory period: The length of time required to produce and sell the product.

Inventory period: The length of time required to produce and sell the product. FIN 301 Class Notes Chapter 19: Short-Term Financial Planning Operating Cycle Purchasing resources from suppliers Producing the product Distributing the product to customers Create cash flows: Unsynchronized:

More information

It is concerned with decisions relating to current assets and current liabilities

It is concerned with decisions relating to current assets and current liabilities It is concerned with decisions relating to current assets and current liabilities Best Buy Co, NA s largest consumer electronics retailer, has performed extremely well over the past decade. Its stock sold

More information

CHAPTER 16 Current Asset Management and Financing

CHAPTER 16 Current Asset Management and Financing Copyright 2008 by the Foundation of the American College of Healthcare Executives 6/13/07 Version 16-1 CHAPTER 16 Current Asset Management and Financing Investment and financing policies Cash and marketable

More information

Chapter 019 Short-Term Finance and Planning

Chapter 019 Short-Term Finance and Planning Multiple Choice Questions 1. The length of time between the acquisition of inventory and the collection of cash from receivables is called the: a. operating cycle. b. inventory period. c. accounts receivable

More information

16A SECURED SHORT-TERM FINANCING ACCOUNTS R ECEIVABLE F INANCING. Procedure for Pledging Accounts Receivable

16A SECURED SHORT-TERM FINANCING ACCOUNTS R ECEIVABLE F INANCING. Procedure for Pledging Accounts Receivable App16A_SW_Brigham_778312 1/21/03 8:16 PM Page 16A-1 16A SECURED SHORT-TERM FINANCING This appendix discusses procedures for using accounts receivable and inventories as security for short-term loans. As

More information

CHAPTER 27. Short-Term Financial Planning. Chapter Synopsis

CHAPTER 27. Short-Term Financial Planning. Chapter Synopsis CHAPTER 27 Short-Term Financial Planning Chapter Synopsis 27.1 Forecasting Short-Term Financing Needs The first step in short-term financial planning is to forecast the company s future cash flows. This

More information

5.3.2015 г. OC = AAI + ACP

5.3.2015 г. OC = AAI + ACP D. Dimov Working capital (or short-term financial) management is the management of current assets and current liabilities: Current assets include inventory, accounts receivable, marketable securities,

More information

Evaluate Performance: Balance Sheet

Evaluate Performance: Balance Sheet Excerpted from FastTrac GrowthVenture Financial statements and reports must be read together to learn the whole financial story. For example, an Income Statement may report a large sale to a new customer,

More information

Chapter 22. Web Extension: Secured Short-Term Financing. Accounts Receivable Financing

Chapter 22. Web Extension: Secured Short-Term Financing. Accounts Receivable Financing Chapter 22 Web Extension: Secured Short-Term Financing T his extension discusses procedures for using accounts receivable and inventories as security for short-term loans. As noted earlier in the chapter,

More information

Current liabilities - Obligations that are due within one year. Obligations due beyond that period of time are classified as long-term liabilities.

Current liabilities - Obligations that are due within one year. Obligations due beyond that period of time are classified as long-term liabilities. Accounting Fundamentals Lesson 8 8.0 Liabilities Current liabilities - Obligations that are due within one year. Obligations due beyond that period of time are classified as long-term liabilities. Current

More information

CHAPTER 26. Working Capital Management. Chapter Synopsis

CHAPTER 26. Working Capital Management. Chapter Synopsis CHAPTER 26 Working Capital Management Chapter Synopsis 26.1 Overview of Working Capital Any reduction in working capital requirements generates a positive free cash flow that the firm can distribute immediately

More information

Web Extension 21A Secured Short-Term Financing

Web Extension 21A Secured Short-Term Financing Nikada/iStockphoto.com Web Extension 21A Secured Short-Term Financing This extension discusses procedures for using accounts receivable and inventories as security for short-term loans. As noted in the

More information

It is concerned with decisions relating to current assets and current liabilities

It is concerned with decisions relating to current assets and current liabilities It is concerned with decisions relating to current assets and current liabilities Best Buy Co, NA s largest consumer electronics retailer, has performed extremely well over the past decade. Its stock sold

More information

Chapter. Working capital

Chapter. Working capital Chapter 10 Working capital 1 10.1 Working capital Working capital is the capital available for conducting the day-to-day operations of the business and consists of current assets and current liabilities.

More information

Understanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions

Understanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions Understanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions Chapter 6 Working Capital Management Concept Check 6.1 1. What is the meaning of the terms working

More information

Apple Capital Group, Inc.

Apple Capital Group, Inc. COMMERCIAL FINANCE Commercial finance typical revolves around what are considered the assets of your business and are often called "asset based loans". The assets of your business are things such as your

More information

Chapter 13. Working Capital Management

Chapter 13. Working Capital Management Chapter 13 Working Capital Management Learning Objectives 1. Model the cash conversion cycle and explain its components. 2. Understand why the timing of accounts receivable is important and explain the

More information

WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT WORKING CAPITAL MANAGEMENT What is Working Capital Working capital management is the set of activities that are required to run day to day operations of the business to ensure that cash is adequate to

More information

Financial Ratios and Quality Indicators

Financial Ratios and Quality Indicators Financial Ratios and Quality Indicators From U.S. Small Business Administration Online Women's Business Center If you monitor the ratios on a regular basis you'll gain insight into how effectively you

More information

CIMA F3 Course Notes. Chapter 3. Short term finance

CIMA F3 Course Notes. Chapter 3. Short term finance CIMA F3 Course Notes c Chapter 3 Short term finance Personal use only - not licensed for use on courses 31 1. Conservative, Aggressive and Matching strategies There are three over-riding approaches to

More information

Chapter16. Managing Short-Term Liabilities (Financing)

Chapter16. Managing Short-Term Liabilities (Financing) Chapter16 Managing Short-Term Liabilities (Financing) 1 Learning Outcomes Chapter 16 Describe the characteristics of the various sources of short-term credit, including Accruals trade credit bank loans

More information

Study Unit 6. Managing Current Assets

Study Unit 6. Managing Current Assets Study Unit 6 Managing Current Assets SU- 6.1 Working Capital What is working capital and types of capital policies What all is included in working capital? Net working capital = What is used to acquire

More information

SOLUTIONS TO END-OF-CHAPTER PROBLEMS. Chapter 17

SOLUTIONS TO END-OF-CHAPTER PROBLEMS. Chapter 17 SOLUTIONS TO END-OF-CHAPTER PROBLEMS Chapter 17 3 360 17-1 Nominal cost of trade credit 97 30-15 0.0309 24 0.7423 74.23%. Effective cost of trade credit (1.0309) 24-1.0 1.0772 107.72%. 17-2 Effective cost

More information

Analyzing Cash Flows. April 2013

Analyzing Cash Flows. April 2013 Analyzing Cash Flows April 2013 Overview Introductions Importance of cash flow in underwriting decisions Key attributes to calculating cash flow Where to obtain information to calculate cash flows Considerations

More information

Course 4: Managing Cash Flow

Course 4: Managing Cash Flow Excellence in Financial Management Course 4: Managing Cash Flow Prepared by: Matt H. Evans, CPA, CMA, CFM This course provides an introduction to cash flow management. This course is recommended for 2

More information

Entrepreneurship Chapter 10 1

Entrepreneurship Chapter 10 1 Operations Management Lesson 10.1 Operating Procedures Goals Define the functions of management. Describe types of policies that should be included in an operations manual. Vocabulary manager management

More information

What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated?

What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated? What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? HOCK international - 2004 1 HOCK international - 2004 2 How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated? HOCK

More information

Athens University of Economics and Business

Athens University of Economics and Business Athens University of Economics and Business MSc in International Shipping, Finance and Management Corporate Finance George Leledakis An Overview of Corporate Financing Topics Covered Corporate Structure

More information

Overview of Financial Solutions

Overview of Financial Solutions Overview of Financial Solutions The Etra Advisory Group provides solutions to businesses for growth, expansion, cash flow, refinance and acquisition. We cover the world of business financing that banks

More information

1. Planning - Establishing organizational goals and deciding how to accomplish them

1. Planning - Establishing organizational goals and deciding how to accomplish them 1 : Understanding the Management Process Basic Management Functions 1. Planning - Establishing organizational goals and deciding how to accomplish them SWOT analysis - The identification and evaluation

More information

Flashcards for Chapter 6 Introduction to Working Capital Management [ ]

Flashcards for Chapter 6 Introduction to Working Capital Management [ ] Flashcards for Chapter 6 Introduction to Working Capital Management [ ] [Type the abstract of the document here. The abstract is typically a short summary of the contents of the document. Type the abstract

More information

Non-traded financial contracts

Non-traded financial contracts 11-1 Introduction Financial contracts are made between lenders and borrowers Non-traded financial contracts are tailor-made to fit the characteristics of the borrower In business financing, the differences

More information

Working Capital. Learning Objectives. By the end of this chapter, you should be able to: List the five objectives of financial management.

Working Capital. Learning Objectives. By the end of this chapter, you should be able to: List the five objectives of financial management. Working Capital Learning Objectives By the end of this chapter, you should be able to: List the five objectives of financial management. Explain the operation of the operating cycle. Define the term net

More information

So You Want to Borrow Money to Start a Business?

So You Want to Borrow Money to Start a Business? So You Want to Borrow Money to Start a Business? M any small business owners cannot understand why a lending institution would refuse to lend them money. Others have no trouble getting money, but they

More information

performance of a company?

performance of a company? How to deal with questions on assessing the performance of a company? (Relevant to ATE Paper 7 Advanced Accounting) Dr. M H Ho This article provides guidance for candidates in dealing with examination

More information

PRESENTS. Top 5 Financing Options for Auto Repair Shop Owners

PRESENTS. Top 5 Financing Options for Auto Repair Shop Owners PRESENTS Top 5 Financing Options for Auto Repair Shop Owners TABLE OF CONTENTS Financing Options for Auto Repair Shop Owners 3 Unsecured Business Loans 4 Equipment Leasing & Financing 5 Business Line of

More information

Chapter 2: Debits and Credits. 2012 Educating Bookkeepers for Business, Inc.

Chapter 2: Debits and Credits. 2012 Educating Bookkeepers for Business, Inc. Chapter 2: Debits and Credits Think through and record transactions (write sentences) using T-accounts and journal entries. Debits and Credits Every transaction (sentence in the story of what happened

More information

Chapter 18 Working Capital Management

Chapter 18 Working Capital Management Chapter 18 Working Capital Management Slide Contents Learning Objectives Principles Used in This Chapter 1. Working Capital Management and the Risk- Return Tradeoff 2. Working Capital Policy 3. Operating

More information

Corporate Credit Analysis. Arnold Ziegel Mountain Mentors Associates

Corporate Credit Analysis. Arnold Ziegel Mountain Mentors Associates Corporate Credit Analysis Arnold Ziegel Mountain Mentors Associates I. Introduction The Goals and Nature of Credit Analysis II. Capital Structure and the Suppliers of Capital January, 2008 2008 Arnold

More information

Outsourcing Accounts Receivable to Increase Cash Flow

Outsourcing Accounts Receivable to Increase Cash Flow Outsourcing Accounts Receivable to Increase Cash Flow Outsourcing Accounts Receivable to Increase Cash Flow In the current economic environment, small and medium-size businesses are facing unprecedented

More information

ABOUT FINANCIAL RATIO ANALYSIS

ABOUT FINANCIAL RATIO ANALYSIS ABOUT FINANCIAL RATIO ANALYSIS Over the years, a great many financial analysis techniques have developed. They illustrate the relationship between values drawn from the balance sheet and income statement

More information

CHAPTER 21. Working Capital Management

CHAPTER 21. Working Capital Management CHAPTER 21 Working Capital Management 1 Topics in Chapter Alternative working capital policies Cash, inventory, and A/R management Accounts payable management Short-term financing policies Bank debt and

More information

CHAPTER 17 Short-Term Financing

CHAPTER 17 Short-Term Financing 17-1 17-2 CHAPTER 17 Short-Term Financing Working capital financing policies Accounts payable (trade credit) Commercial paper Short-term bank loans Secured short-term credit Working Capital Financing Policies

More information

Accounting 201 Comprehensive Practice Exam 2C Page 1

Accounting 201 Comprehensive Practice Exam 2C Page 1 Accounting 201 Comprehensive Practice Exam 2C Page 1 1. A business organized as a corporation a. is not a separate legal entity in most states. b. requires that stockholders be personally liable for the

More information

Commercial Credit Report Plus Guide

Commercial Credit Report Plus Guide Page 1 Reading the Commercial Credit Report Plus This report contains Experian Trade Payment data, public record, collections and corporate linkage. It also includes Dun & Bradstreet s demographics data

More information

CIMA F3 Financial Strategy

CIMA F3 Financial Strategy CIMA F3 Financial Strategy Determining policy in respect of investment and financing of working Capital Working Capital Investment Investment in working capital is mainly a decision of risk and reward.

More information

Ipx!up!hfu!uif Dsfeju!zpv!Eftfswf

Ipx!up!hfu!uif Dsfeju!zpv!Eftfswf Ipx!up!hfu!uif Dsfeju!zpv!Eftfswf Credit is the lifeblood of South Louisiana business, especially for the smaller firm. It helps the small business owner get started, obtain equipment, build inventory,

More information

Pivotal Issues When Managing. Chapter 7. Cash and Receivables. Skyline College Lecture Notes. Cash Considerations. Cash Requirements.

Pivotal Issues When Managing. Chapter 7. Cash and Receivables. Skyline College Lecture Notes. Cash Considerations. Cash Requirements. Chapter 7 Cash and Receivables Skyline College Lecture Notes Pivotal Issues When Managing Cash and Receivables 1. Cash needs 2. Credit policies 3. Level of accounts receivable 4. Financing receivables

More information

ENTREPRENEURIAL FINANCE: Strategy Valuation and Deal Structure

ENTREPRENEURIAL FINANCE: Strategy Valuation and Deal Structure ENTREPRENEURIAL FINANCE: Strategy Valuation and Deal Structure Chapter 7. Methods of Financial Forecasting: Integrated Financial Modeling Questions and Problems 1. The cash cycle is the time between when

More information

Report Description. Business Counts. Top 10 States (by Business Counts) Page 1 of 16

Report Description. Business Counts. Top 10 States (by Business Counts) Page 1 of 16 5-Year County-Level Financial Profile Industry Report Architectural Services (SIC Code: 8712) in Prince George County, Maryland Sales Range: $500,000 - $999,999 Date: 11/07/08 Report Description This 5-Year

More information

Short-Term Finance and Planning

Short-Term Finance and Planning Short-Term Finance and Planning Chapter 26 PART SEVEN On 1 January 2005 retailing giant Wal-Mart began requiring its 100 largest suppliers to put radio frequency identification (RFID) tags on cases and

More information

WHAT IS BUSINESS CREDIT?

WHAT IS BUSINESS CREDIT? 1 WHAT IS BUSINESS CREDIT? Why Do I Need Credit? Establishing a good credit rating is an important financial priority for every business. Having good business credit means that owners of businesses can

More information

Commercial and Industrial Lending

Commercial and Industrial Lending Commercial and Industrial Lending A CPA Perspective April 2014 Overview Introductions and Goals of Presentation Commercial and Industrial Lending: Brief Background Covenants, Advance Rates, and Borrowing

More information

Timing of Hiring a Turnaround Management Firm. Turnarounds & Crisis Management Solutions to Complex Business Problems

Timing of Hiring a Turnaround Management Firm. Turnarounds & Crisis Management Solutions to Complex Business Problems Solutions to Complex Business Problems Atlanta Chapter, Georgia Society of CPA s October 21, 2010 by Mark D. Kaplan, Principal Restructuring Profit Advisors, LLC 400 Trowgate Lane Atlanta, Georgia 30350

More information

Chapter 9 Solutions to Problems

Chapter 9 Solutions to Problems Chapter 9 Solutions to Problems 1. a. Cash and cash equivalents are cash in hand and in banks, plus money market securities with maturities of 90 days or less. Accounts receivable are claims on customers

More information

Chapter 12 Forecasting and Short- Term Financial Planning

Chapter 12 Forecasting and Short- Term Financial Planning Chapter 12 Forecasting and Short- Term Financial Planning LEARNING OBJECTIVES 1. Understand the sources and uses of cash in building a cash budget. 2. Explain how companies use sales forecasts to predict

More information

Short-Term Financial Decisions

Short-Term Financial Decisions Part 5 Short-Term Financial Decisions Chapter 13 Working Capital and Current Assets Management Chapter 14 Current Liabilities Management 492 Chapter 13 Working Capital and Current Assets Management LG1

More information

Business Loan Programs

Business Loan Programs THE FINANCING DESK January-14 Business Loan Programs SBA 7(a) SBA 504 For all owner occupied Businesses For all owner occupied Businesses a) Purchase, Refinance, Rehab, Construction, Working Capital, a)

More information

Understanding Working Capital in a Successful Business Acquisition or Where is the Working Capital?

Understanding Working Capital in a Successful Business Acquisition or Where is the Working Capital? Understanding Working Capital in a Successful Business Acquisition or Where is the Working Capital? Working capital definition- 1. The amount of capital needed to carry on a business. 2. Accounting- current

More information

Manage your stock effectively

Manage your stock effectively Manage your stock effectively What is stock? Stock in terms of the normal business, is generally referred to as "trading stock". This includes anything that has been manufactured, produced or bought for

More information

CPD Spotlight Quiz September 2012. Working Capital

CPD Spotlight Quiz September 2012. Working Capital CPD Spotlight Quiz September 2012 Working Capital 1 What is working capital? This is a topic that has been the subject of debate for many years and will, no doubt, continue to be so. One response to the

More information

Accounts Receivable and Inventory Financing

Accounts Receivable and Inventory Financing Accounts Receivable and Inventory Financing Glossary Accounts Payable - A current liability representing the amount owed by an individual or a business to a creditor for merchandise or services purchased

More information

MORTGAGE DICTIONARY. Amortization - Amortization is a decrease in the value of assets with time, which is normally the useful life of tangible assets.

MORTGAGE DICTIONARY. Amortization - Amortization is a decrease in the value of assets with time, which is normally the useful life of tangible assets. MORTGAGE DICTIONARY Adjustable-Rate Mortgage An adjustable-rate mortgage (ARM) is a product with a floating or variable rate that adjusts based on some index. Amortization - Amortization is a decrease

More information

Financing the Business

Financing the Business USQ UNIVERSITY OF SOUTHERN QUEENSLAND MBA - ACC5502 Accounting & Financial Management / S1 / 2015 Financing the Business M B G Wimalarathna [FCA, FCMA, MCIM, FMAAT, MCPM, (MBA PIM/USJ)] Financing through

More information

Lecture 13 Working Capital Management and Credit Issues

Lecture 13 Working Capital Management and Credit Issues Lecture 13 - Working Capital Management Gross working capital: Net working capital: BASIC DEFINITIONS Total current assets. Net operating working capital (NOWC): Operating CA Operating CL = Current assets

More information

Chapter 07 - Accounts and Notes Receivable. Chapter Outline

Chapter 07 - Accounts and Notes Receivable. Chapter Outline Chapter 07 - Accounts and Receivable I. Accounts Receivable A receivable is an amount due from another party. Accounts Receivable are amounts due from customers for credit sales. A. Recognizing Accounts

More information

Sources of Short-Term Financing C H A P T E R E I G H T

Sources of Short-Term Financing C H A P T E R E I G H T Sources of -Term Financing C H A P T E R E I G H T Figure 8-1 Structure of corporate debt, 1998 PPT 8-1 35% 30% 25% 20% 15% 10% 5% 0% Accounts payable Bank loans Other short term loans term paper Bonds

More information

How Bankers Think. Build a sound financial base to support your company for future growth

How Bankers Think. Build a sound financial base to support your company for future growth How Bankers Think Build a sound financial base to support your company for future growth Presented by: Lisa Chapman Business Planning, Social Media Marketing & SEO 615-477-8412 Questions to Consider First

More information

3. Seasonal or cyclical working capital to finance the temporary cash shortfalls due to the nature of the firm s normal business cycle.

3. Seasonal or cyclical working capital to finance the temporary cash shortfalls due to the nature of the firm s normal business cycle. 11.437 Financing Community Economic Development Class 5: Working Capital Financing I. Three different meanings of term working capital 1. Excess of current assets over current liabilities 2. Firm's investment

More information

Using Credit to Your Advantage Credit Cards and Loans Participant Guide

Using Credit to Your Advantage Credit Cards and Loans Participant Guide Hands on Banking Using Credit to Your Advantage The Hands on Banking program is a free public service provided by Wells Fargo. You may also access the program anytime at www.handsonbanking.org & www.elfuturoentusmanos.org

More information

Plan and Track Your Finances

Plan and Track Your Finances Plan and Track Your Finances 9.1 Financing Your Business 9.2 Pro Forma Financial Statements 9.3 Recordkeeping for Businesses Lesson 9.1 Financing Your Business Goals Estimate your startup costs and personal

More information

Dealing With Your Banker &

Dealing With Your Banker & Dealing With Your Banker & Other Lenders Your financing The success or failure of your business will depend on whether or not you have enough capital to: buy the equipment and inventory you need; pay overhead

More information

Chapter 8 Topic 1. Chapter 8: Topic 1 Valuation of Inventories The Basics. Student Learning Outcomes. Inventories: Financial Analysis

Chapter 8 Topic 1. Chapter 8: Topic 1 Valuation of Inventories The Basics. Student Learning Outcomes. Inventories: Financial Analysis Chapter 8: Topic 1 Valuation of Inventories The Basics Dr. Chula King ACG 3101 Student Learning Outcomes Perpetual versus periodic inventory system Effects of inventory errors Items to include in inventory

More information

Commercial Credit Report Pro Guide

Commercial Credit Report Pro Guide Page 1 Reading the Commercial Credit Report Pro Get up to double the business credit information with our Advantage series reports including data from Experian, Dun & Bradstreet and Equifax. Too many times

More information

This is Cash and Cash Conversion Cycle, chapter 17 from the book Finance for Managers (index.html) (v. 0.1).

This is Cash and Cash Conversion Cycle, chapter 17 from the book Finance for Managers (index.html) (v. 0.1). This is Cash and Cash Conversion Cycle, chapter 17 from the book Finance for Managers (index.html) (v. 0.1). This book is licensed under a Creative Commons by-nc-sa 3.0 (http://creativecommons.org/licenses/by-nc-sa/

More information

CAPITULO 14 ADMINISTRACIÓN DE PASIVOS CIRCULANTES EJERCIOS Y PROBLEMAS DE REPASO

CAPITULO 14 ADMINISTRACIÓN DE PASIVOS CIRCULANTES EJERCIOS Y PROBLEMAS DE REPASO CAPITULO 14 ADMINISTRACIÓN DE PASIVOS CIRCULANTES EJERCIOS Y PROBLEMAS DE REPASO Ejercicios 1. As part of a union negotiation agreement, the United Clerical Workers Union conceded to be paid every two

More information

Business Loan Secrets. 6 Types of Financing You Can Get Right Now Even if You Have Credit Issues or No Collateral

Business Loan Secrets. 6 Types of Financing You Can Get Right Now Even if You Have Credit Issues or No Collateral Business Loan Secrets 6 Types of Financing You Can Get Right Now Even if You Have Credit Issues or No Collateral 6 Types of Financing You Can Get Right Now Even if You Have Credit Issues or No Collateral

More information

Answer of Multiple Choice Questions 1. (A) 2. (A) 3. (B) 4. (A) 5. (D) 6. (C) 7. (D) 8 (A) 9 (B) 10 (A)

Answer of Multiple Choice Questions 1. (A) 2. (A) 3. (B) 4. (A) 5. (D) 6. (C) 7. (D) 8 (A) 9 (B) 10 (A) 1. is concerned with the acquisition, financing, and management of assets with some overall goal in mind. A. Financial management B. Profit maximization C. Agency theory D. Social responsibility 2. Jensen

More information

GETTING A BUSINESS LOAN

GETTING A BUSINESS LOAN GETTING A BUSINESS LOAN With few exceptions, most businesses require an influx of cash now and then. Sometimes it is for maintaining growth; sometimes it is for maintaining the status quo. From where does

More information

3,000 3,000 2,910 2,910 3,000 3,000 2,940 2,940

3,000 3,000 2,910 2,910 3,000 3,000 2,940 2,940 1. David Company uses the gross method to record its credit purchases, and it uses the periodic inventory system. On July 21, 20D, the company purchased goods that had an invoice price of $ with terms

More information

Short Term Finance and Planning. Sources and Uses of Cash

Short Term Finance and Planning. Sources and Uses of Cash Short Term Finance and Planning (Text reference: Chapter 27) Topics sources and uses of cash operating cycle and cash cycle short term financial policy cash budgeting short term financial planning AFM

More information

Preparing Financial Statements

Preparing Financial Statements Preparing Financial Statements Understanding financial statements is essential to the success of a small business. They can be used as a roadmap to steer you in the right direction and help you avoid costly

More information

Chapter 6. An advantage of the periodic method is that it is a easy system to maintain.

Chapter 6. An advantage of the periodic method is that it is a easy system to maintain. Chapter 6 Periodic and Perpetual Inventory Systems There are two methods of handling inventories: the periodic inventory system, and the perpetual inventory system With the periodic inventory system, the

More information

Working Capital Management & Short Term Financing

Working Capital Management & Short Term Financing CA BUSINESS SCHOOL POSTGRADUATE DIPLOMA IN BUSINESS & FINANCE SEMESTER 3: Financial Strategy Working Capital Management & Short Term Financing M B G Wimalarathna (FCA, FCMA, MCIM, FMAAT, MCPM)(MBA PIM/USJ)

More information

SOLUTIONS TO END-OF-CHAPTER PROBLEMS. Chapter 16 = $5,000,000. = $2,000,000.

SOLUTIONS TO END-OF-CHAPTER PROBLEMS. Chapter 16 = $5,000,000. = $2,000,000. SOLUTIONS TO END-OF-CHAPTER PROBLEMS Chapter 16 16-1 Net Float = Disbursement Float - Collections Float = (4 $10,000) - (3 $10,000) = $10,000. 16-2 Sales = $10,000,000; S/I = 2. Inventory = S/2 $10, 000,000

More information

Financial Terms & Calculations

Financial Terms & Calculations Financial Terms & Calculations So much about business and its management requires knowledge and information as to financial measurements. Unfortunately these key terms and ratios are often misunderstood

More information

This week its Accounting and Beyond

This week its Accounting and Beyond This week its Accounting and Beyond Monday Morning Session Introduction/Accounting Cycle Afternoon Session Tuesday The Balance Sheet Wednesday The Income Statement The Cash Flow Statement Thursday Tools

More information

In this chapter, we build on the basic knowledge of how businesses

In this chapter, we build on the basic knowledge of how businesses 03-Seidman.qxd 5/15/04 11:52 AM Page 41 3 An Introduction to Business Financial Statements In this chapter, we build on the basic knowledge of how businesses are financed by looking at how firms organize

More information

Your Bank Is Not Your Only Source for Capital. AccuPay Webinar Series

Your Bank Is Not Your Only Source for Capital. AccuPay Webinar Series Your Bank Is Not Your Only Source for Capital AccuPay Webinar Series The World of Business Finance After 2008: Bank regulation cash reserves Money to lend? What are my options? What Are Your Needs? Leasing

More information

Xynergy Commercial Capital LLC

Xynergy Commercial Capital LLC Xynergy Commercial Capital LLC How Can Work For You The Problem Short of cash and must pay suppliers, lease, bills and salaries? No need for stress, get your payments in advance for your invoices and pay

More information

tutor2u Stock Control The Importance of Managing Stocks AS & A2 Business Studies PowerPoint Presentations 2005

tutor2u Stock Control The Importance of Managing Stocks AS & A2 Business Studies PowerPoint Presentations 2005 Stock Control The Importance of Managing Stocks AS & A2 Business Studies PowerPoint Presentations 2005 What Are Stocks? Three main categories of stocks Raw Materials Work in Progress Finished Goods Types

More information

ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6E

ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6E CHAPTER 11 Creating a Successful Financial Plan The Importance of a Financial Plan Financial planning is essential to running a successful business and is not that difficult! Common mistake among business

More information

Debt Service Analysis: Can I Repay?

Debt Service Analysis: Can I Repay? Purdue Extension Knowledge to Go Debt Service Analysis: Can I Repay? Low prices and incomes have made many farmers and their lenders concerned about the farmers ability to fulfill debt obligations. Lenders

More information

Alessandro Anzalone, Ph.D. Hillsborough Community College, Brandon Campus

Alessandro Anzalone, Ph.D. Hillsborough Community College, Brandon Campus Alessandro Anzalone, Ph.D. Hillsborough Community College, Brandon Campus 1. Introduction 2. Basic Concepts of Inventory 3. Categories of Inventory 4. The Basic Inventory Lot Sizing Model Economic Order

More information