Working Capital Management refers to the set of corporate finance activities that deal with the short-term financing requirements of a business. The key goal of working capital management is to ensure that the company has sufficient funds to carry out its day-to-day operations and meet its short-term debt obligations. Working capital management also ensures that […]
Working Capital Management
Sources of Liquidity and Factors Affecting Firm’s Liquidity
The liquidity of a firm refers to its ability to meet short-term obligations using firm’s assets can be quickly converted to cash. Cash is the most liquid form of asset a firm has. Different assets offer different levels of liquidity. For example a firms inventory is considered a liquid asset but may not be as […]
Comparing a Firm’s Liquidity Position with its Peers
Different companies operate under different liquidity conditions due to the factors affecting them or due to the nature of the industry they operate in. An analyst will use various liquidity and other ratios to determine the firm’s liquidity position and to compare it with its peers or industry standards. The important ratios are: Click the […]
Managing the Cash Position of a Firm
One of the most important activities in a business is to manage its day to day cash position. The goal is to ensure that the net cash position is not negative and at the same time there is not too much excess idle cash. Ideally, a business would want its cash inflows and outflows to […]
Short Term Investment Strategies
A key element of working capital optimization is the short-term investment strategies treasurers undertake. They are a vital tool of risk management, but are somewhat more limited in their type and maturity than long term strategies. Liquidity and security are the twin objectives managers look for in short term investments. Short- term strategies fall into […]
Evaluating the Management of Short-term Funds
Based on their short-term investment policy, the treasurer can effectively manage the short-term funds, including short-term investments, borrowings, etc. There are sophisticated treasury management software available to do this. A treasury manager based on his needs, size of the funds, and complexity in the portfolio may decide to use a treasury software or simply do […]
Evaluating Management of Accounts Receivables
In any business it is a usual practice to provide credit to your customers. Granting credit helps the business in increasing sales but at the same time also increases the risk of uncollectible accounts. The company needs to actively manage and monitor the accounts receivables and evaluate how well the company is managing its receivables. […]
Management of Inventory
Management of inventory is another important aspect of a business. The goal here is to maintain an optimal level of inventory. If the inventory levels are too low, it can lead to a loss of sales because of stock-outs. At the same time, if there is too much inventory, it indicates that the firm’s excess […]
Management of Accounts Payable
Accounts payable are the amounts that are due to the suppliers of goods and services to the business. For example, a furniture chain buys its raw material from various suppliers on credit. Accounts payable arise from trade credit, which is an important portion of working capital. It works in favor of both the buyer and […]
Calculating the Cost of Trade Credit
Trade credit is an important source of liquidity and financing for any company. The company needs to manage its accounts payables effectively and take advantage of the credit period to minimize its cost of funds. An important decision here is whether it is beneficial for the company to pay within the discount period or pay […]