ch16managingcurrentassets(财务管理,英文版).pptVIP

CHAPTER 16Managing Current Assets Alternative working capital policies Cash management Inventory management Accounts receivable management Definitions Gross W.C.: Total current assets. Net W.C.: Current assets – Current liabilities. W.C. Policy: Decisions as to (1) the level of each type of current asset, and (2) how current assets will be financed. W.C. Management: Controlling cash, inventories, and A/R, plus S-T liability management. Selected Ratios--SKI Inc. How does SKI’s working capital policy compare with the industry? Working capital policy is reflected in current ratio, quick ratio, turnover of cash and securities, inventory turnover, and DSO. These ratios indicate SKI has large amounts of working capital relative to its level of sales. SKI is either very conservative or inefficient. Is SKI inefficient or just conservative? A conservative (relaxed) policy may be appropriate if it leads to greater profitability. However, SKI is not as profitable as the average firm in the industry. This suggests the company has excessive working capital. Cash Conversion Cycle Cash doesn’t earn a profit, so whyhold it? 1. Transactions: Must have some cash to operate. 2. Precaution: “Safety stock.” But lessened by line of credit, marketable securities. 3. Compensating balances: For loans and/or services provided. 4. Speculation: To take advantage of bargains, to take discounts, etc. Reduced by credit lines, securities. What’s the goal of cash management? To meet above objectives, especially to have cash for transactions, yet not have any excess cash. To minimize transactions balances in particular, and also needs for cash to meet other objectives. Ways to Minimize Cash Holdings Use a lockbox. Insist on wire transfers from customers. Synchronize inflows and outflows. Use a remote disbursement account. Increase forecast accuracy to reduce need for “safety stock” of cash. Hold marketable securities (also reduces need for “safety stock”). Negotiate a line of credit (